Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

CFP Exam > CFP - Bonds > Flashcards

CFP - Bonds Flashcards

1
Q

Are US Treasury securities taxable?

A

NON-taxable at the state and local level

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

Series EE / Series E Bonds

Minimum purchase?

Annual maximum?

Face value?

Pay interest?

Redeemable?

A

$25 minimum purchase

$10,000 annual maximum

Offered at one-half face value

DO NOT pay interest, bond slowly increase in value over 20 years

NOT marketable/Non-transferable!!!!!!!!!!!!

Redeemable after 1 year with 3 month interest penalty if redeemed in less than 5 years

NOT taxed at the state or local level

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

Series HH / Series H Bonds

How often do they pay interest?

A

Pay interest semi-annually

*have not been issued since August 2004

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

Series I Bonds

Indexed against what?

Sold at what?

Interest consists of what?

A

Inflation indexed bonds

Sold at Face Value

No guaranteed return

NONMARKETABLE

Interest consists of what?
Fixed rate of return + inflation component

*Adjusted every six months

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

MARKETABLE US Treasury Bills

A

< 1 year

Sold at discount

No interest, just mature

Denominations of $100+

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

MARKETABLE US Treasury Notes

A

2-10 years

Interest paid semi-annually

Denominations of $100+

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

MARKETABLE US Treasury Bonds

A

> 10 years

Interest paid semi-annually

Denominations of $100+

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

Original Issue Discount (OID)

A

OID bond issued at a discount from Par Value

Ex: Zero coupon bond that is sold at a deep discount to par value

Bond increases in value over the term of the bond

Recognize income each year (even though not received)

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

Treasury Inflation Protected Securities (TIPS)

A

coupon rate does not change

rather it is adjusted annually for inflation by a factor

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

Separate Trading of Registered Interest and Principal Securities (STRIPS)

A

Coupon payment separated from the bond

low risk

highly liquid

specific time horizon

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

Name 2 types of bonds that mitigate against purchasing power risk?

A

I Bonds

TIPS

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

Federal Agency Securities…are they back by US government

A

NO, but they are a moral obligation

Exception: GMNAs

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

On-Budget types of Debt

A

GNMA
FHA

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

Off Budget Debt

A

FNMA (Fannie Mae)
FHLMC (Freddie Mac)
SLMA (Sallie Mae)
FFCB (Federal Farm)
FICB

FHLB

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

Types of Mortgage Backed Securities

A

GNMA (Ginnie Mae) (FHA/VA)

FNMA (Fannie Mae)

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

Biggest risk with Mortgage-backed securities?

A

Falling interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are MBSs backed by?

A

A pool of mortgages

Risk:prepayment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are corporate Collateral Trust bonds?

A

Backed by an asset owned by the company issuing the bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are CMOs?

A

Collateralized Mortgage Obligations

Short/Immediate/LT “tranches”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Types of Unsecured Corporate Bonds

A

Debentures (not back by asset)

Subordinated Debentures (lower claim on assets)

Income bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

If a bond rating agency rates a bond high, what will happen to the yield?

A

Lowers the yield if rated high

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

GIC - Guaranteed Investment Contract

Issued by?

Return?

A

GIC - Guaranteed Investment Contract

Issued by? - Insurance Companies

Return? guaranteed rate

YIELD IS HIGHER THAN TREASURIES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Municipal bonds

Who issues?

Who taxes?

A

Who issues? STATE

Who taxes? NO ONE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

MUNICIPAL BONDS: General Obligation Bonds

Who backs?

A

Backed by full, faith, and credit and taxing authority of municipality

BACKED BY TAXING AUTHORITY OF THE ISSUING MUNICIPALITY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
MUNICIPAL BONDS: Revenue Bonds Who backs?
Backed by the revenue of specific project
26
MUNICIPAL BONDS: Private activity bonds are used to finance
Construction of stadiums
27
MUNICIPAL BONDS: Insured Municipal Bonds Companies that issue: If insured bond is in default, what happens?
Companies that issue: AMBAC MBIA If insured bond is in default, what happens? THE INSURANCE COMPANY WILL PAY THE INTEREST AND PRINCIPAL AMOUNTS
28
FIXED INCOME: Corporate Bonds RISKS?
-Default -Reinvestment -Interest rate risk -Purchasing Power Risk
29
FIXED INCOME: US Government bond - RISKS?
-Reinvestment rate risk -interest rate risk -purchasing power risk
30
Municipal Securities - Tax equivalent yield
Formula provided rate they need to pay to be equivalent
31
The lower the coupon the more
volatile the bond is.
32
The lowest Bond rating for Moody's and S&P that can still be considered investment grade?
Moody's: Baa S&P: BBB
33
Coupon rate
Periodic interest received by a bond holder Dollar amount (PMT on calculator) Changes in the marketplace DO NOT EFFECT coupon payments
34
Rising interest rates mean investors can get what on new bonds? What happens to those selling bonds?
Larger stream of cash flow Sellers must sell at a discount
35
FALLing interest rates mean investors can get what on new bonds? What happens to those selling bonds?
Coupon rates will fall will be less than previous bonds sellers can now sell at a premium
36
YTM on a bond is
Essentially the compounded rate of return if an investor buys a bond today and holds to maturity
37
YTC / Yield to call on a bond is
the compounded rate of return if an investor buys a bond today and the bond is CALLED by the issuer
38
What happens to accrued interest when purchasing a bond?
The buyer pays the seller the interest that has accrued since the last payment
39
Liquidity Preference Theory
Lower yields for shorter maturities because some investors prefer liquidity and are willing to pay for it
40
Market Segmentation THeory
Distinct buyers and sellers at each given maturity
41
Expectations Theory
The yield reflects investors inflation expectations LT yields are usually higher
42
When is a yield curve INVERTED?
Whenever inflation is expected to be lower in the future, the LT rates will be lower than ST rates
43
Unbiased Expectations Theory
Holds that today's longer term interest rates have imbedded in them expectations about ST rates
44
Bond Duration
Weighted average maturity of all the cash flows
45
The bigger the bond duration, the more
sensitive or volatile the bond is to interest rate changes
46
Modified bond duration is
a bond's price sensitivity to changes in interest rates
47
A bond portfolio should have a duration equal to
the investor's time horizon to be effectively immunized from interest rates
48
A zero coupon bond will always have a duration
equal to its maturity
49
Duration and term of bond have a direct/inverse relationship
DIRECT
50
Duration is a measure of
how sensitive the bond is to changes in interest rates
51
BOND STRATEGIES: Tax Swap
Involves selling a bond that has a gain and a bond that has a loss (Offset each other) Also involves selling a bond that has a loss position and buying a new bond.
52
BOND STRATEGIES: Barbells
A barbell strategy involves owning both short-term and long-term bonds
53
BOND STRATEGIES: Laddered Bonds
Requires purchasing bonds with varying maturities
54
BOND STRATEGIES: Bullets
Very little payments during the interim period and then a lump-sum at some specified date in the future *Zero-coupon bonds, treasuries, and corporates are most likely candidates since they pay little or no coupon during the period (payoff at some predetermined date in the future)
55
What is the Convertible Bonds - Conversion Value?
The value of the convertible bond in terms of the stock which it can be converted
56
Conversion Value Formula
Par / Conversion Price x Price of the Common Stock
57
Property Valuation Formula / Capitalized Value
Net Operating Income / Capitalization Rate OR NOI / Cost
58
What does CONVEXITY MEASURE?
The difference between duration's estimate of a bond's price change and the actual price change of a bond.
59
Lower coupon rate means what for volatility?
MORE VOLATILE
60
The duration of a bond is a function of its:
-current price -time to maturity -YTM -coupon rate
61
To immunize a bond portfolio over a specific investment horizon, an investor would do what?
Match the average weighted duration of the bond portfolio to the investment horizon

CFP Exam (23 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions