Asset Classes - Debt Valuation Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

In a normal market, which one of the following is true?

A

The price of a short-term 5% gilt will be higher than the price of the 5% long-term gilt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

An investor has £10,000 nominal of a convertible bond. Its conversion terms are 50 shares per £100 nominal at a price of £1 (per share). The share price is currently £4.00 per share. What would happen to the price of the convertible bond if the share price fell?

A

Fall

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

flat yield formula

A

FY = coupon / bond price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What primary feature of a bond price is reflected in the yield curve?

A

Inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

If a company’s credit rating changed from AA to AAA, what would you expect to happen to the yield?

A

Price increases, yield decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which ONE of the following best represents ten basis points?

A

0.1%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Which of the following is true if the UK government bond yield curve is inverted?

A

Yields on short-dated gilts are greater than yields on medium- and long-dated gilts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

gross redemption yield

A

GRY = flat yield + yield on redemption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why, when interest rates rise, do bond prices fall?

A

Bond yields stay in line with interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Which of the following is true for a gilt trading above par?

A

Flat-yield > GRY > NRY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When the price of a bond changes, the yield also changes. An approximate change in the yield can be predicted using:

A

Modified duration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

For which of these can you calculate a gross redemption yield?

A

ABC’s step-up bond 2031

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Which of the following is the best description of the modified duration of a bond?

A

The change in the price of a bond for a given change in interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Which of the following is TRUE with respect to the flat-yield and gross redemption yield on a bond trading BELOW par?

A

The GRY will be higher than the flat-yield

There will be a capital gain on the bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If a 10% coupon paying bond has a price of £100 and a 15% coupon paying bond has a price of £150, which of the following is false assuming they both have the same maturity?

A

The gross redemption yield for both is identical

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Which one of the following is not a usual method of bond quotation?

A

Price spread

17
Q

If the credit rating on a corporate bond is upgraded, which ONE of the following is TRUE?

A

Coupon will remain the same and price will rise

18
Q

A registered UK charity has invested in gilts. Which of the measures below is the most relevant to them?

A

Gross redemption yield

19
Q

Which of the following would determine the shape of a normal yield curve?

A

Liquidity

20
Q

Price paid

A

Price paid = clean price + accrued interest.

21
Q

Modified duration

A

Modified duration is a measure of a bond’s volatility to interest rate movements. Modified duration is highest for bonds with:

  • Low coupons
  • Long maturity
  • Low yields
22
Q

Which of the following would lead to the highest increase in price of a convertible trading at a zero premium to par?

A

A large increase in the price of the underlying shares

23
Q

According to the pure expectations theory, which of the following is the principal reason for an inverted risk-free government bond yield curve?

A

Short-term interest rates are high and expected to fall

24
Q

What are inter-bank lending rates used to determine?

A

LIBOR

25
Q

What happens to a bond if its credit-rating changes from sub-investment grade to investment grade?

A

Price increases, coupon stays the same