Chapter 2 - Fixed Income Analysis

Question 1

What are some special features of bonds

Answer 1

1. Callable - can be purchased back at the option of the issuer
2. Convertible - can be converted into equity for corporate bonds
3. Zero coupon - no coupon but are issued at a discount to face value

Question 2

What are bonds

Answer 2

1. The most common form of fixed instrument
2. Debt instruments to raise mid to long-term funds for various issuers (country, municipal and corporate)
3. Fixed tenure and a predefined coupon payable at defined intervals

Question 3

What are some features of the Eurobond

Answer 3

1. They are issued in a currency other than the home currency if the issuer
2. Flexibility for buyer to select currency of choice

Question 4

What are the features of asset backed securities

Answer 4

These are fixed income instruments that are structured based on the income generated by a pool of assets.

The securitization and subsequent sale of these assets creates liquidity for the issuer (to create more assets)

Creates opportunities for investors to have access to investments that they normally would not have been able to invest in

Performance of the instrument is based on the quality of the underlying asset