4: DEBT SECURITIES (107)

Question 1

What is the coupon rate of this bond: FLB Zr 37 87 87½.

Answer 1

Coupon is 0%

“Zr” means zero coupon

Question 2

Is commercial paper secured or unsecured debt

Answer 2

Unsecured debt

Question 3

Commericial paper has maturity less than ____ days

Answer 3

270 days

Question 4

Is call protection on a bond valuable when interest rates are rising or declining?

Answer 4

Valuable when interest rates are declining

Issuer will call in those bonds, issue new ones

Question 5

T/F: The three major rating services each have their own rating system for short-term municipal debt (notes).

Answer 5

True

Question 6

Would a security with an S&P rating of SP-2 most likely be for a muni note or for commercial paper

Answer 6

Muni note

Question 7

T/F: Regulation S-P deals with due diligence

Answer 7

False

Deals with privacy notices

Question 8

If interest rates rise, would a short tem bond/long term bond have a greater increase/decrease in price?
(answer both)

Answer 8

If rates rise, long term bond will have a greater decrease in price

Question 9

Would a short term bond or long term bond be more negatively effected by a rise in interest rates?

Answer 9

Long term bond would suffer more

Question 10

What is sovereign debt?

Answer 10

Debt from a country

Money a country borrows

Question 11

What are the sovereign bedt securities issued by the US?

Answer 11

Treasury securities

Question 12

A bonds YTM is aka as it’s ____

Answer 12

Basis

Question 13

When referring to bonds, basis is another name for ____

Answer 13

YTM

Question 14

Formula for current yield

Answer 14

Annual interest amount / current price

Question 15

What is the current yield of a bond with a 5% nominal yield and selling at 115?

Answer 15

about 4.35%

Found by dividing the annual interest amount ($50) by the current market price ($1,150)

Question 16

A bond’s nominal yield is aka as it’s _____

Answer 16

coupon

Question 17

If you see a bond is “currently selling at 105 1/2” what is it actually selling at? (actual number)

Answer 17

Selling @ $1,055

Question 18

Min face amount of a negotiable CD

Answer 18

$100,000

Question 19

T/F: An issuer will call the higher coupon bonds before calling the lower coupon bonds

Answer 19

True

Question 20

Which of the following callable municipal bonds trading on a 7% basis is most likely to be called?

A)
7.5% coupon, callable at 105 in 2030
B)
7.5% coupon, callable at 100 in 2030
C)
6.5% coupon, callable at 100 in 2030
D)
6.5% coupon, callable at 105 in 2030

Answer 20

B) 7.5% coupon, callable at 100 in 2030
An issuer will call the higher coupon bonds before calling the lower coupon bonds. Of the two bonds with coupons of 7.5%, the one with the lower call price will likely be called first.

Question 21

A bonds coupon is aka as it’s ____

Answer 21

Nominal yield

Question 22

T/F: Nominal yield (coupon) is awlays shown on a bond certificate as a percentage of the par value

Answer 22

True

Question 23

A bond with a 5% coupon would pay $____ every year in interest

Answer 23

$50

Question 24

Bond with a 6% coupon would pay a semiannual interest amount of _____

Answer 24

$30

Question 25

Regular way settlement for US Gov Bonds (not munis)

Answer 25

Regular way settlement for U.S. government bonds occurs on the business day after the trade date (T+1).

Question 26

CAV of bond

Answer 26

The CAV is calculated by taking its original purchase price and adding the accrued interest previously earned by the bondholder. Yeah

Question 27

Stated yield is another name for:

____ yield

or
____ yield

(2 other names)

Answer 27

Stated yield can be used interchangeably with “coupon yield” or “nominal yield”

Question 28

What is the coupon yield (%) for a bond that pays $60 annual interest?

Answer 28

6%

$60 annual interest / $1,000 par value = 6% coupon yield

Question 29

Formula for current yield

Answer 29

Annual interest payment / CMV

Example: Bond trading @ $1,200 pays $60 annual interest = 5% current yield

Question 30

If you see that a bond is trading to yield 3.70, that means the YTM is ___%

Answer 30

YTM would be 3.7%

Question 31

What is the price of a bond quoted as:

“6s of ‘43 @ 92”

Answer 31

$920

6s of ‘43 @ 92 = 92% of par = .92($1,000) = $920

Question 32

Formula for conversion ratio [convertible bonds]

Answer 32

Par / conversion price

Example: Bond is convertible @ $40.
$1,000 / $40 = 25 share conversion ratio

Question 33

What is “term maturity” when talking about bonds

Answer 33

It means the entire issue matures on one date

Question 34

Are Equity-linked notes (ELNs) debt instruments?

Answer 34

Yes they are
>When traded on an exchange they’re exchange-traded notes (ETNs)
>Have unique risks, not suitable for most investors

“Despite the misleading name, ELNs are debt instruments. When traded on an exchange, they are exchange-traded notes (ETNs).

Question 35

Are Equity linked notes and exchange traded notes suitable for most investors?

Answer 35

No

>considered alternative products with unique risks, and therefore, not suitable for most investors

Question 36

T/F: Equity linked notes (ELNs) and exchange traded notes (ETNs) are both debt instruments and both are not suitable for most investors

Answer 36

True
>debt instruments
>not suitable for most investors
>mostly sophisticated investors

Question 37

Do non-sophisticated investors usually buy equity linked notes and exchange traded notes?

Answer 37

No
>usually sophisticated investors only
(both are debt instruments)

Question 38

Interest and principal on a Eurodollar bond issued in Germany are paid in what currency?

Answer 38

USD
>”EuroDOLLAR” bond

“It is always the final part of the word that describes the currency of a eurobond. A Eurodollar bond pays in U.S. dollars, while a Euroyen bond would pay in Japanese yen.”

Question 39

T/F: The key to a Eurodollar bond is that everything is in U.S. dollars.

Answer 39

True, USD

> Issuer is either a non-U.S. corporation or government
Bond is not issued in the United States.

Question 40

Definition of “quality” with respect to bond ratings

Answer 40

the ability of the issuer or guarantor to pay (default risk).

Question 41

T/F: With STRIPS, even though you don’t get interest each year like U.S. treasuries, you still pay accredited interest.

Answer 41

True

-STRIPS are accredited

Question 42

How is commercial paper quoted?

Answer 42

On a discount yield basis

“Like all zeroes, it is quoted on a discounted yield basis.”

Question 43

T/F: commercial paper is quoted as a percentage of par

Answer 43

False

Like all zeroes, it is quoted on a discounted yield basis.