Chapter 7 Flashcards
These are issued every 2 weeks in 3, 6, and 12 month terms. They are issued at less than face value.
Treasury bills
Rank the debt securities in orde
Capital Securities First Mortgage and Asset backed Secured Debt Common Shares Preferred Shares Unsecured Debentures
First Mortgage and Asset backed Secured Debt Unsecured Debentures Capital Securities Preferred Shares Common Shares
This type of debt security are orders by a banks customer to pay a sum at a future date. Thy trade at $1000 with a min of $25,000. They are issued at a discount and mature at par.
Bankers’ Acceptances
These are similar to BA’s and T-bills, but may be backed by a pool of financial assets or only by the creditworthiness of the borrower.
Commercial Paper
They’re available each year from October 1 to April 1 see if he’s can be redeemed at par anytime before maturity and have regular or compound interest.
There is no interest paid if redeemed during the first 3 months.
They are not transferable except for divorce, death or marriage.
Only sold to Canadian residence from $100 to a max of $500,000
Canada Savings Bonds
Can only be redeemed on anniversary date or 30 days afterwards. They offer higher return.
Canada Premium Bonds
What is true of Macaulay duration?
A. It is never smaller than modified duration.
B. It is the average time to principal payback.
C. It is the approximate bond price change assuming cash flow does not change when yields change.
D. It is the precise bond price change assuming cash flow changes when yields change.
A. It is never smaller than modified duration.
Macaulay duration is always larger because of the relationship Modified Duration = Macaulay Duration/(1+(y/k)) where y is the yield to maturity and k is number of coupon payments per year. y and k are always positive numbers.
What is the formula for Modified Duration?
Modified Duration = Macaulay Duration / (1 + (y/k))
What is true of Macaulay duration?
A. It is never smaller than modified duration.
B. It is the average time to principal payback.
C. It is the approximate bond price change assuming cash flow does not change when yields change.
D. It is the precise bond price change assuming cash flow changes when yields change.
A. It is never smaller than modified duration.
Macaulay duration is always larger because of the relationship Modified Duration = Macaulay Duration/(1+(y/k)) where y is the yield to maturity and k is number of coupon payments per year. y and k are always positive numbers.
What is the formula for Modified Duration?
Modified Duration = Macaulay Duration / (1 + (y/k))
What is the primary difference between a U.S. Treasury Inflation Protected Security (TIPS) and a Government of Canada real return bond?
Protection from deflation.
What is the primary difference between a U.S. Treasury Inflation Protected Security (TIPS) and a Government of Canada real return bond?
Protection from deflation.
All else being equal, the longer the term to maturity, the ____ the convexity.
Greater
How are market yield and modified duration related?
Market yield and modified duration are inversely related. The higher the market yield, the lower the duration becomes.
Yield and convexity are (directly or inversely) related.
Inversely
