Bond Basics Flashcards
Which of the following would be a quote for a US government bond?
105.625
105-20
105 5/8
105 10/16
105-20
Which of the following would be a quote for a US Government bond with a dollar price of $1,012.50?
101.25
101-8
101 1/4
101 4/16
101-8
How are Treasury Notes quoted?
Whole and Fractional
A municipal dealer buys a $1,000 par 30 year, 12% bond on a 12% basis. The dealer reoffers the bond, marking it up by 40 basis points. The yield at which the dealer is reoffering the bond is:
11.60%
In 2020, a customer buys 1 PDQ 10%, $1,000 par debenture, M ‘35, at 115. The interest payment dates are Jan 1st and Jul 1st. The nominal yield on the bond is
10.00%
Which statement is TRUE about bond price changes that result from interest rate movements?
A- Short term bond prices move more slowly than long term bond prices
B- Long term bond prices move more slowly than short term bond prices
C- Both short term and long term prices move at equivalent rates
D- No relationship exists between short term and long term bond price movements
A- Short term bond prices move more slowly than long term bond prices
In 2020, a customer buys 5 GE 10% debentures, M ‘40. The interest payment dates are Feb 1st and Aug 1st. The current yield on the bonds is 11.76%. The bonds are callable as of 2030 at 103. The bond is trading:
A- at a premium
B- at a discount
C- at par
D- in the money
B- at a discount
The current yield on a bond is
stated interest rate/ bond market value
A corporation has issued 8% AA rated sinking fund debentures at par. Three years later, similar issues are being offered in the primary market at 7%. Which statement is TRUE about the outstanding 8% issue?
A- the dollar price of the bond will be at a discount to par and the current yield will be higher than the nominal yield
B- The dollar price of the bond will be at a discount to par and the current yield will be lower than the nominal yield
C- The dollar price of the bond will be at a premium to par and the current yield will be lower than the nominal yield
D- The dollar rice of the bond will be at a premium to par and the current yield will be higher than the nominal yield
C- The dollar price of the bond will be at a premium to par and the current yield will be lower than the nominal yield
A 9%, $1,000 par corporate bond is trading at $1,100. What is the current yield?
8.18%
In 2020, a customer buys 1 PDQ 10%, $1,000 par debenture, M ‘35, at 115. The interest payment dates are Jan 1st and Jul 1st. The current yield on the bond is:
8.70%
If a bond is trading at a premium, which statement is TRUE?
A- The current yield will be higher than the nominal yield
B- The yield to maturity will be higher than the nominal yield
C- The yield to maturity will be lower than the current yield
D- The nominal yield and current yield will be the same
C- The yield to maturity will be lower than the current yield
When a bond trades at a premium, which bond yield will be the lowest?
Basis (or yield to maturity)
The City of Peoria, Illinois has outstanding $100,000,000 of 7% General Obligation bonds, M ‘39. The bonds are callable at 103, beginning 1/1/19. The bonds are currently trading at 104 ½. The call premium on the bonds is:
A- 1 1/2 points
B- 3 points
C- 4 1/2 points
D- 5 1/2 points
B- 3 points
Bonds with a call feature benefit the:
Issuer
When interest rates have fallen, an issuer will:
call the outstanding high interest rate bonds and issue new bonds with lower interest rates
Which statement is TRUE regarding the effect of market interest rate movements on callable and puttable bond prices?
A- When interest rates fall, the call price tends to set a ceiling on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond
B- When interest rates fall, the call price tends to set a floor on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond
C- When interest rates rise, the put price tends to set a ceiling on the market price of the bond and when interest rates fall, the call price tends to set a ceiling on the market price of the bond
D- When interest rates rise, the put price tends to set a floor on the market price of the bond and when interest rates fall, the call price tends to set a floor on the market price of the bond
A- When interest rates fall, the call price tends to set a ceiling on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond
Which of the following Moody’s MIG ratings is used for the lowest investment grade paper?
A- MIG 1
B- MIG 2
C- MIG 3
D- SG
B- MIG 2
The risk that rising interest rates will cause bond prices to fall is
Interest Rate Risk
What will not affect the marketability of a corporate bond?
Bond denominations
Which of the following will increase the marketability risk of a bond?
A- Active trading in that security
B- The presence of numerous bids
C- Round lot size transaction amount
D- Large block size transaction amount
D- Large block size transaction amount
Reinvestment risk occurs in investment time horizons during which market interest rates are
falling
Securities subject to reinvestment risk are those that are
long term and make periodic payments to investors
