Chapter 4: Bonds Flashcards
4% Treasury Gilt is an example of which type of government bond ?
UK Government Bond
Which type of government bond would you expect to be the most attractive during a period of rising inflation ?
Index-Linked Bonds, the coupon and redemption change inline with inflation so the real value doesn’t get eroded.
What is the function of a call provision when attached to a bond ?
A call provision allows the issuer to redeem all or part of the bond before maturity.
What is the typical maturity period for a MTN
Standard corporate bond with maturity up to 5 years
What options does a convertible bond give to an investor ?
- Collect the interest payments and repayment on maturity.
- Convert the bond into ordinary shares prior to maturity
What type of bond does not pay interest ?
ZCB - Zero Coupon Bond.
What type of assets might you see pooled together to provide backing for an asset- backed security?
Mortgages, Credit card debt and accounts receivable
What will the impact of a fall in interest rates to bond prices ?
Interest rates and bond prices have an inverse relationship. If interest rates fall, bond prices rise.
You have a holding of £1,000, 1.75% Treasury Stock 2028 which is priced at £117. What is the flat yield ?
1.175 divided by 117 x 100 = 1.49%
What credit rating should be looked for in a bond when seeking the greatest liquidity and certainty of repayment?
AAA or Aaa - Investment Grade
