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Investment And Portfolio Management > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

are roughly equally split between government and corporate bonds

A

bonds

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2
Q

Are issued by national governments and by supranational agencies such as the bank of america and the world bank

A

Government bonds

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3
Q

Are issued by companies such are as large banks and other large corporate listed companies like san miguel corporation

A

Corporate bonds

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4
Q

It can be seen in a bond certificate

A

issuer
maturity or redemption
face value, par or principal
coupon

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5
Q

Are commonly referred to as a loan stock, debt or fixed interest securities

A

bonds

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6
Q

The feature that distinguishes a bond from most loans is that a bond is

A

tradable

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7
Q

The six terms that can be seen in the table

A

nominal
stock
coupon
redemption date
price
value

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8
Q

This is the amount of stock purchase and should not be confused with the amount invested or the cost of purchase

A

nominal

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9
Q

This is the amount on which the interest will be paid and the amount that will eventually be repaid

A

nominal

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10
Q

It is also known as the par or face value of the bond

A

nominal

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11
Q

It represents us government bonds issued with relatively long periods to maturity

A

treasury bond

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12
Q

This is the amount of interest paid per year expressed as percentage of the face value of the bond

A

coupon

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13
Q

This is the date at which the issue expires and the lender will repay the borrower the sum borrowed

A

Redemption date

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14
Q

Redemption date is also known as the

A

Maturity date

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15
Q

Bonds generally have default risk and price risk

A

bonds

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16
Q

The inverse relationship between interest rates and bond prices

A

If interest rates increase bond prices will decrease and if interest rates decreased bond prices will increase

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17
Q

Other main types of risk associated with holding bonds

A

early redemption
seniority risk
inflation risk
liquidity risk
exchange rate risk

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18
Q

The risk that the issuer may invoke a call provision and redeem the bond early

A

Early redemption

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19
Q

This relate to the seniority with which corporate debt is rank in the event of the issuer’s liquidation

A

seniority risk

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20
Q

The risk of inflation rising unexpectedly and eroding the real value of the bonds coupon and redemption payment

A

inflation risk

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21
Q

Is the ease with which a security can be converted into cash

A

liquidity

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22
Q

Bonds denominated in a currency different from that of the investors home currency are potentially subject to adverse exchange rate movements

A

Exchange rate risk

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23
Q

The three most prominent credit rating agencies are

A

standard and poor
moody’s
fitch ratings

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24
Q

Bond issues subject to credit ratings can be divided into two distinct categories

A

Those accorded an investment grade rating and those categorized as non-investment grade or speculative

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25
Q

Is also known as high yield or for the worst rated junk bonds

A

Non-investment grade

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26
Q

It offer the greatest liquidity and certainty of repayment,

A

Investment-grade

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27
Q

Government bond markets

A

US
UK
Germany
France
Japan
Primary Market Issuance

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28
Q

These government bond market is the largest and most liquid in the world

A

US

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29
Q

Government bonds issued by the us government are generally known as

A

Treasuries

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30
Q

Treasuries have four main marketable types

A

treasury bills
treasury notes
treasury bonds. treasury inflation protected securities

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31
Q

A money market instrument used to finance the government’s short-term borrowing needs

A

Treasury bills

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32
Q

They are zero-coupon instruments that pay no interest and instead are issued at a discount to their maturity value

A

Treasury bills

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33
Q

They have maturities of less than a year and are typically issued with maturities of 28 days 91 days and 182 days

A

Treasury bills

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34
Q

Conventional government bonds that have a fix coupon and redemption date

A

Treasury notes

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35
Q

They have maturity dates ranging from more than one year to not more than 10 years from the issue date

A

Treasury notes

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36
Q

Again conventional government bonds but with maturities of more than 10 years from their issue date most commonly issued with maturities of 30 years

A

Treasury bonds

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37
Q

These are index link bands and are referred to as the TIPS

A

Treasury inflation protected securities

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38
Q

STRIPS

A

Separate trading of registered interest and principal securities

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39
Q

These are also traded based on this trip elements of treasury notes bonds and tips

A

Strips

40
Q

These are traded for settlement the next day

A

US treasuries

41
Q

Some of the biggest issuers of bonds are

A

Fannie Mae
Freddie Mac

42
Q

These are issued by states cities countries and other government entities to raise money to build schools highways hospitals and sewer systems as well as many other projects

A

municipal bonds

43
Q

Interest is usually paid semi-annually and many are exempt from both federal and state taxes

A

Municipal bonds

44
Q

Uk government bonds are known as

A

gilts

45
Q

These are instruments that carry a fixed coupon and a single repayment date such as 5% treasury gilt 2025

A

Conventional government bonds

46
Q

This type of bond represents the majority of government bonds in issue

A

Conventional government bonds

47
Q

Are bonds were the coupon and the redemption amount are increased by the amount of inflation over the life of the bond they are similar to the us tips

A

index - linked bonds

48
Q

Uk government stocks are classified into the following

A

0-3 years remaining ultrashort dated
3- 7 years remaining short dated
7-15 years remaining medium dated
15 years and over remaining long dated

49
Q

The main types of german government bonds are

A

bunds
schatz
bobls

50
Q

are longer term instruments

A

bunds

51
Q

are issued with 2 year maturities

A

schatz

52
Q

are issued with 5 year maturities

A

bobls

53
Q

Are issued with maturities of between 8 and 30 years but the most common maturity is 10 years

A

bunds

54
Q

This market is large and liquid and the yield on bunds set the set the benchmark for other european government bonds

A

bunds market

55
Q

It settle two business days after trade date

A

domestic trades

56
Q

is made up of longer term instruments knows as OATS and shortdated stocks known as BTANs, which have maturities up to five years

A

French government debt

57
Q

Trading in OATS in both the domestic and international market is for

A

T +2 two business days later

58
Q

Trading in BTANs is

A

T+1 in domestic market
T +2 in international settlement

59
Q

This bond market is one of the largest in the world and its bonds are usually referred to as JGBs

A

Japanese government bonds

60
Q

Japanese government bonds are classified into six categories

A

Short-term bonds
medium term bonds
long-term bonds
super long-term bonds
individual investor bonds
inflation indexed bonds

61
Q

Japanese government bonds have maturities as follows

A

Fixed rate coupon bearing bonds - 2,5 10,20,30 40 years
Inflation-indexed bonds - 10 years
Floating rate bonds - 15 years
JGBs for retail.investors - 3, 5, 10 years

62
Q

It operate in a similar way to TIPS that is the principal amount is inflation adjusted based on movements in the cpi and the coupon is fixed but payable in the inflation-adjusted principal amount

A

Inflation indexed bonds

63
Q

Government bonds are usually issued through agencies that are part of the country’s treasury department

A

Primary market issuance

64
Q

Are typically made in the form of an action or large investors submit competitive bids

A

issues

65
Q

The issuer’s for the government bonds described above are as follows

A

US: Bureau of the Fiscal Service
UK:Debt Management Office
Germany : Finanzagentur GmbH
France : Agence France Tresor
Japan: Ministry of Finance

66
Q

Is bond that is issued by a company as the name suggests

A

Corporate bonds

67
Q

The term is usually applied to longer-term debt instruments with a maturity date of more than 12 is used for instruments with a shorter maturity

A

Corporate bonds

68
Q

is used for instrument with a shorter maturity

A

commercial paper

69
Q

features of corporate bonds

A

bond security
redemption provisions

70
Q

Usually means some form of charge over the issuers assets so that if the issuer defaults the bondholders have a claim on those assets before other creditors

A

security

71
Q

The security offered may be

A

fixed or floating

72
Q

It implies that specific assets of the company or charge as security for the loan

A

fixed security

73
Q

It means that the general assets of the company are offered as security for the loan this might include cash at the bank trade debtors or stock

A

floatingcharge

74
Q

It gives the issuer the option to buy back all or part of the issue before maturity

A

call provision

75
Q

These give the band holder the right to require the issuer to redeem early on a set date or between specific dates

A

put provisions

76
Q

types of corporate debt

A

medium-term notes
fixed rate bonds
floating rate notes
convertible bonds
zero coupon bonds

77
Q

are standard corporate bonds with maturities ranging usually from 9 months to 5 years though the term is also applied to instruments with maturities as long as 30 years

A

medium term notes

78
Q

They have fixed coupons which are paid either half-yearly or annually and predetermined redemption dates

A

fixed rate bonds

79
Q

Are bonds that have variable rates of interest

A

floating rate notes

80
Q

This is the rate of interest at which banks will land to one another in london and is often used as a basis for financial instrument cash flows

A

London interbank offered rate (LIBOR)

81
Q

are issued by companies and they give investor holding the bond two possible choices

A

convertible bonds

82
Q

Is a bonds that pay no interest

A

Zero-coupon bonds

83
Q

Is an alternative term for the interest payment on a bond

A

coupon

84
Q

These are bundled securities so cold because they are marketable securities that result from the bond length or packaging together of a set of non marketable assets

A

asset backed securities

85
Q

Are created by bonding together a set of mortgages and then issuing bonds that are backed by these assets

A

mortgage backed bonds

86
Q

These bonds are sold on the investors who receive interest payments until they are redeem

A

mortgage backed bonds

87
Q

Creating a bond in this way is known as… and it began in the us in 1970 when the government first issued mortgage certificates is security representing ownership of a pool of mortgages

A

securitization

88
Q

international bonds

A

domestic and foreign bonds
eurobonds

89
Q

Is issued by a domestic issuer into the domestic market

A

domestic bond

90
Q

Is issued by an overseas entity into a domestic market and is denominated in the domestic currency

A

foreign bond

91
Q

Are large international bond issues often made by governments and multinational companies

A

eurobonds

92
Q

Is one denominated in sterling and issued outside the uk though not necessarily in a european financial center

A

euro sterling bond issue

93
Q

Are a measure of the returns to be earned on bonds

A

yields

94
Q

The interest paid on a bond as a percentage of its market price is referred to as the

A

flat or running yield

95
Q

Is calculated by taking the annual coupon and dividing by the bonds price and and multiplying by 100 to obtain a percentage

A

flat yield

96
Q

Is a measure that incorporates both the income and capital return assuming the investor holds the bond until its maturity into one figure

A

redemption yield

Investment And Portfolio Management (6 decks)

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