Debt Securities

Question 1

What is the assumed par value for bonds

Answer 1

1K

Question 2

Whats another name for the par value

Answer 2

the principal
face value

Question 3

What are the different maturities for bonds

Answer 3

term
serial
balloon

Question 4

What is a term bond

Answer 4

mature all at once

Question 5

What is a serial bond

Answer 5

portions oof the bond mature over time

Question 6

What is a balloon bond

Answer 6

combo of serial and term, small pay back before maturity date then the majority at maturity

Question 7

What is a coupon rate

Answer 7

the interest rate

Question 8

Instead of coupon rate, what might the interest rate fo a bond be called

Answer 8

nominal yield
stated yield

Question 9

How is bond pricing measured

Answer 9

in points with a point being 1% of par
bond is trading at 90
but really its 90 X 10 so 900

Question 10

for the overall yield of a bond, what are the different ways to calculate it

Answer 10

coupon/nominal
Current yield: take the annual coupon paid out / market price
Yield to Maturity: if held to maturity than this measure the return by considering a discount or premium at purchase
Yield to Call: bond can be called to be redeemed by the issuer before maturity

Question 11

If you see a bond trading on a “basis of” then

Answer 11

see if it then provides a yield if it does then the yield is YTM

Question 12

What is a call and put feature of a bond

Answer 12

call - the issuer can call the bond mature now
Put - the owner of the bond can sell the bond back to the issuer

Question 13

Why would a put feature on a bond be advantageous

Answer 13

if market coupons rise to 8% when you have a 6% coupon, then you can sell the bond back, and reinvest at market coupon

Question 14

With call features on bonds what is a coupon consideration

Answer 14

likely needs to be higher to compensate for the risk of being called

Question 15

What is a put feature on a bond

Answer 15

exact opposite of a call feature

Question 16

What is it called when a convertible bond is valued exactly at the price of the shares it can convert into

Answer 16

parity

Question 17

Zero coupon bonds issued by the Treasury are called

Answer 17

STRIPS

Question 18

A basket of STRIPS made by a BD is called

Answer 18

Treasury receipts

Question 19

What is the main difference between treasury receipts and STRIPS

Answer 19

Treasury receipts arent backed by the gov

Question 20

What can enhance the safety of a debt security

Answer 20

collateral

Question 21

What is the general layout of the letter grades for bonds

Answer 21

A is slightly susceptible to economic conditions
BBB slightly speculative and is the last of investment grade
BB significant chance the issuer could miss an interest payment
Everything below BB \ Ba could miss interest payments

Question 22

Why are bond prices and interest rates inverse

Answer 22

if you have a bond at 5% and the interest rate drop to 3%, the new bonds will be 3% so your 5% bond is more valuable

Question 23

What bonds are considered secured debt

Answer 23

mortgage bonds
equipment Trust certificates (like having the train cars of a railroad company be the collateral to the loan that bought them)
collateral trust bonds (the collateral are treasury stocks or stocks and bonds from other issuers)

Question 24

Consideration for collateral trust bonds

Answer 24

the stock or bond collateral must be liquid

Question 25

Examples of unsecured debt

Answer 25

debentures (corporate bonds back only by an IOU) Guaranteed bonds (same as debentures but parent company picks up the bill if the issuing corp defaults) income bonds (after reorg or default, the corp only pays interest if it has enough income) Subordinated debt (the lowest level of any unsecured debt)

Question 26

What debt securities settle T+2 and accrue interest on a 30mo/360day year

Answer 26

Corp debt munis

Question 27

What are the types of munis

Answer 27

GO bonds revenue bond

Question 28

What is a GO bond

Answer 28

issued for a capital improvement usu doesnt produce income so interest is paid by other revenue sources usu require voter approval

Question 29

What are revenue bonds

Answer 29

the prin and int are supported by the income that project gens usu doesnt need voter approval

Question 30

What is a consideration of a revenue bond from an authority

Answer 30

Each bond from them may only be backed by a portion of the auths income not all ex: a bond for a bridge only back by the income from that bridge

Question 31

What are the different US Treasury debts in order of maturity

Answer 31

T bills T notes Tbonds

Question 32

Characteristics of T bills

Answer 32

less than a year no interest instead sold at discount to par then redeemed at par at maturity the 13wk/90day T bill is oft used in market analysis as the risk free investment

Question 33

Characteristics of T notes

Answer 33

2-10 years semiannual interest

Question 34

Characteristics of T bonds

Answer 34

10-30 years semiannuual interest

Question 35

What is the settlement time and interest accrual schedule of US Treasury securities

Answer 35

T+1 interest on actual days elapsed

Question 36

What are TIPS

Answer 36

Treassury Inflation protected secs

Question 37

What are some considerations with TIPS

Answer 37

Value of the principal adjusts with inflation every 6mo interest paid ev 6mo Payment at will never be less than the 1000 par

Question 38

Who else is given auth to issue national gov debt

Answer 38

Farm credit admin Fannie mae Freddy mac Ginnie mae

Question 39

Characteristics of ginnie mae secs

Answer 39

backed by US oversees HUD

Question 40

What kind of risk would be associated with ginnie mae

Answer 40

prepayment risk if matured early (aka people paid off their mortgages early)

Question 41

Freddy mac does what

Answer 41

helps create a secondary market for mortgages by creating MBS's

Question 42

Fannie mae does what

Answer 42

buys mortgages from FHA and VA

Question 43

What are money market secs

Answer 43

fixed income debt secs with 1yr or less to maturirty

Question 44

What are some examples of money market securities

Answer 44

Jumbo CDs Bankers acceptances Commercial paper T bills Repos Federal funds loans

Question 45

What are jumbo CDs

Answer 45

an unsecured promissory note from a bank that is sold at face value and pays interest at maturityW

Question 46

consideration for bank issue/jumbo CDs

Answer 46

only considered money market instrument if traded on secondary market

Question 47

What are Bankers acceptances

Answer 47

maturity of less than 270 discount to par often usu by import export businesses

Question 48

What is commercial paper

Answer 48

270 or less maturity unsecured debt from a corp

Question 49

What consideration for T notes and bonds and money market secs

Answer 49

if less than a year to maturity, they are considered money market instruments

Question 50

What are Repos

Answer 50

agreement to sell an asset now and repurchase for a slightly higher price later

Question 51

What are federal funds loans

Answer 51

member banks of the Federal Reserve Board need to maintain certain reserve with them and if their is excess the FED can overnight loan to other members so they can maintain they reserve requirements

Question 52

What are some asset backed secs

Answer 52

CMOs CDOs

Question 53

What are CMOs

Answer 53

collateralized mortgage obligations pools of mortgages sctructured into maturity classes called tranches

Question 54

How are P&I structured with CMOs

Answer 54

both paid monthly but the principal is paid one tranche at a time

Question 55

What can effect the flow of P&I of a CMO to its investors and why

Answer 55

changes to interest rates bec of refinancing

Question 56

What are CDOs

Answer 56

mult types of debt usu not mortgages

Question 57

What are the debt types and their risks called for CMOs and CDOs

Answer 57

tranches or slices

Question 58

What are tranches or slices

Answer 58

maturity classes of CDO or CMO that come with their own risk/reward combos