4: DEBT SECURITIES (107) Flashcards
What is the coupon rate of this bond: FLB Zr 37 87 87½.
Coupon is 0%
“Zr” means zero coupon
Is commercial paper secured or unsecured debt
Unsecured debt
Commericial paper has maturity less than ____ days
270 days
Is call protection on a bond valuable when interest rates are rising or declining?
Valuable when interest rates are declining
Issuer will call in those bonds, issue new ones
T/F: The three major rating services each have their own rating system for short-term municipal debt (notes).
True
Would a security with an S&P rating of SP-2 most likely be for a muni note or for commercial paper
Muni note
T/F: Regulation S-P deals with due diligence
False
Deals with privacy notices
If interest rates rise, would a short tem bond/long term bond have a greater increase/decrease in price?
(answer both)
If rates rise, long term bond will have a greater decrease in price
Would a short term bond or long term bond be more negatively effected by a rise in interest rates?
Long term bond would suffer more
What is sovereign debt?
Debt from a country
Money a country borrows
What are the sovereign bedt securities issued by the US?
Treasury securities
A bonds YTM is aka as it’s ____
Basis
When referring to bonds, basis is another name for ____
YTM
Formula for current yield
Annual interest amount / current price
What is the current yield of a bond with a 5% nominal yield and selling at 115?
about 4.35%
Found by dividing the annual interest amount ($50) by the current market price ($1,150)
A bond’s nominal yield is aka as it’s _____
coupon
If you see a bond is “currently selling at 105 1/2” what is it actually selling at? (actual number)
Selling @ $1,055
Min face amount of a negotiable CD
$100,000
T/F: An issuer will call the higher coupon bonds before calling the lower coupon bonds
True
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
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.
A bonds coupon is aka as it’s ____
Nominal yield
T/F: Nominal yield (coupon) is awlays shown on a bond certificate as a percentage of the par value
True
A bond with a 5% coupon would pay $____ every year in interest
$50
Bond with a 6% coupon would pay a semiannual interest amount of _____
$30
Regular way settlement for US Gov Bonds (not munis)
Regular way settlement for U.S. government bonds occurs on the business day after the trade date (T+1).
CAV of bond
The CAV is calculated by taking its original purchase price and adding the accrued interest previously earned by the bondholder. Yeah
Stated yield is another name for:
____ yield
or
____ yield
(2 other names)
Stated yield can be used interchangeably with “coupon yield” or “nominal yield”
What is the coupon yield (%) for a bond that pays $60 annual interest?
6%
$60 annual interest / $1,000 par value = 6% coupon yield
Formula for current yield
Annual interest payment / CMV
Example: Bond trading @ $1,200 pays $60 annual interest = 5% current yield
If you see that a bond is trading to yield 3.70, that means the YTM is ___%
YTM would be 3.7%
What is the price of a bond quoted as:
“6s of ‘43 @ 92”
$920
6s of ‘43 @ 92 = 92% of par = .92($1,000) = $920
Formula for conversion ratio [convertible bonds]
Par / conversion price
Example: Bond is convertible @ $40.
$1,000 / $40 = 25 share conversion ratio
What is “term maturity” when talking about bonds
It means the entire issue matures on one date
Are Equity-linked notes (ELNs) debt instruments?
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).
Are Equity linked notes and exchange traded notes suitable for most investors?
No
>considered alternative products with unique risks, and therefore, not suitable for most investors
T/F: Equity linked notes (ELNs) and exchange traded notes (ETNs) are both debt instruments and both are not suitable for most investors
True
>debt instruments
>not suitable for most investors
>mostly sophisticated investors
Do non-sophisticated investors usually buy equity linked notes and exchange traded notes?
No
>usually sophisticated investors only
(both are debt instruments)
Interest and principal on a Eurodollar bond issued in Germany are paid in what currency?
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.”
T/F: The key to a Eurodollar bond is that everything is in U.S. dollars.
True, USD
> Issuer is either a non-U.S. corporation or government
Bond is not issued in the United States.
Definition of “quality” with respect to bond ratings
the ability of the issuer or guarantor to pay (default risk).
T/F: With STRIPS, even though you don’t get interest each year like U.S. treasuries, you still pay accredited interest.
True
-STRIPS are accredited
How is commercial paper quoted?
On a discount yield basis
“Like all zeroes, it is quoted on a discounted yield basis.”
T/F: commercial paper is quoted as a percentage of par
False
Like all zeroes, it is quoted on a discounted yield basis.
