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Series 7 > Debt > Flashcards

Debt Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Term bonds all have the same _____ and _____

A

interest rate and maturity

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2
Q

Serial bonds have different _____ and _____

A

interest rates and maturities

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3
Q

Series bonds have the same _____ but different _____

A

same dates of maturity but different dates of issuance

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4
Q

Term bonds are quoted on a ______ basis

A

percentage of par (dollar bonds)

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5
Q

Corp bonds are quoted at a minimum of ____, while gov’t bonds are quoted at a minimum of ____

A

1/8th; gov’t at 1/32nd

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6
Q

Serial bonds (munis are typically serial bonds) are quoted on a ______ basis

A

yield

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7
Q

The approx. price of a bond quoted on a yield basis is =

A

= coupon / basis

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8
Q

The most volatile bonds in regards to interest rate movements are ________

A

long term, zero coupon bonds

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9
Q

For zero coupon bonds, the duration is equal to the ______

A

time to maturity

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10
Q

The nominal yield is the stated rate of _____ on the bond

A

state rate of interest

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11
Q

The current yield takes into account the _____ of the bond, and is calculated as =

A

market price, calculated as = income / mkt price

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12
Q

The yield to maturity takes into account the market price of the bond as well as any ______ or ______

A

discount or premium

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13
Q

YTM =

A

= (annual income +/- discount/premium) / ((purchase price + redemption price)/2)

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14
Q

Call protection is typically ______

A

10 years

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15
Q

Call prices tend to set a _____ for bond prices as interest rates _____

A

set a ceiling as interest rates fall

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16
Q

Zero coupon bonds are called at the current _______ plus a call premium

A

accreted value

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17
Q

Put features set a ____ for bond prices when interest rates are _____

A

set a floor when interest rates are rising

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18
Q

For a discount bond, the YTC is _____ than the YTM

A

Greater

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19
Q

For a premium bond, the YTC is _____ than the YTM

A

less

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20
Q

Moody’s ratings for commercial paper are _____-

A

P1, P2, P3, NP

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21
Q

Moody’s ratings for municipal notes are ______

A

MIG 1, MIG 2, MIG 3, SG

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22
Q

The only bonds that avoid reinvestment risk are ____-

A

zero coupon bonds

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23
Q

An expanding spread of the yield curve indicates an impending _____

A

recession

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24
Q

A registered to principal only bond has the _____- registered to the owner but the bond still has _____

A

principal is registered to the owner, but the bond still has bearer coupons

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25
Q

All corporate issues over _____ must have a trust indenture

A

$50m

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26
Q

Sometimes long-term corp debt is termed _____ debt

A

funded

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27
Q

Open end trust indentures allow the corporations to sell additional ____ having equal status against the real estate

A

sell additional bonds

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28
Q

Closed-end trust indentures mean that the corporation can sell additional bonds only if they are _____ to the existing bonds

A

junior

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29
Q

Equipment trust certificates are issued in _____ form

A

serial

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30
Q

Maturity for commercial paper will never exceed _____

A

270 days

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31
Q

Commercial paper is issued at a _____ and comes in minimum denominations of ______

A

issued at a discount and comes in denominations of $100,000

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32
Q

Income bonds are used during _____ and only pay interest if there is enough _____

A

used during bankruptcy and only pay interest if there is sufficient income earned (also called adjustment bonds)

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33
Q

Income bonds will trade _____

A

flat - ie without any accrued interest

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34
Q

Parity of bond price for a convertible bond =

A

= conversion ratio x stock’s mkt price

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35
Q

Parity price of stock for a convertible bond =

A

= bond mkt value / conversion ratio

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36
Q

When a convertible bond is trading above par, the price is being most influenced by the _____

A

stock mkt price (when below par, influenced by interest rates)

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37
Q

To issue convertible bonds, the corporation needs ______

A

shareholder approval (because of the potential dilutive effect)

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38
Q

The conversion price on convertible bonds is adjusted for ______ and _____

A

stock dividends and stock splits

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39
Q

Cash settlements for bonds occurs the _____ before ____

A

same day before 230pm

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40
Q

Corp bonds settle through the _____, the deposits are known as _____

A

NSCC, funds known as “clearing house funds”

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41
Q

Gov’t bonds, gov’t agency securities, and mortgage-back securities settle in _____ through the _____

A

settle in fed funds through the FICC

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42
Q

Corp bonds accrue interest on a ______ basis

A

30 day month / 360 day year

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43
Q

Savings bonds (EE bonds) are _______ and cannot be traded; they are bought directly from the ____ and can be redeemed with the _____

A

are non-negotiable and are bought/redeemable with the gov’t

44
Q

Agency debt is not guaranteed by the ____, but there is an implicit promise to pay in default

A

US gov’t

45
Q

One agency’s debt is backed by the gov’t — ____

A

GNMA

46
Q

Treasury bonds have a maturity of _____, come in denominations of ____, and pay interest _______

A

30 years; $100; semi-annually

47
Q

Treasury receipts were the original version of _____ and are no longer created (they were sold by brokers).

A

original version of STRIPS

48
Q

TIPS have a fixed ______ but the _____ is adjusted every _____ in accordance with the CPI

A

have a fixed interest rate but the principal is adjusted every 6 months with inflation

49
Q

Treasury notes are ______ term securities with maturities ranging from ___ to ____

A

intermediate; maturities ranging from 1-10 years

50
Q

T-Notes are denominated in _____ and pay interest _____

A

$100; pay interest semi-annually

51
Q

T-Bills are quoted on a ______ basis

A

discount yield

52
Q

Cash Management Bills (CMBs) are very short term treasury securities with maturities that range from ___ days to ____ months

A

5 days to 6 months

53
Q

CMBs are sold on an ______ basis (not at regularly scheduled auctions)

A

as-needed

54
Q

CMBs are sold in ____ min amounts and pay slightly _____ than T-Bills

A

$100; slightly more

55
Q

Fed Farm Credit discount notes mature in ______ or less, sold at a discount to min face value of ____, and yield ____ than equivalent T-Bills

A

1 year or less; $5,000 min face value; yield more than equivalent T-Bills

56
Q

Fed Farm Credit designated bonds are _______, pay interest _____, and have maturities of _____

A

non-callable; pay interest semi-annually, and have maturities of 2-10 years (face is also $5,000)

57
Q

Fed Farm Credit bonds are _____, pay interest _____, and have maturities up to _____

A

callable, semi-annually, and maturities up to 30 years ($5,000 face value OR can be floating at min $100,000)

58
Q

THe FHLB is the ______

A

Federal Home Loan Banks

59
Q

Fannie Mae is _______

A

Federal National Mortgage Association

60
Q

Ginnie Mae is ______

A

Government National Mortgage Association

61
Q

Freddie Mac is _____

A

Federal Home Loan Mortgage Corporation

62
Q

Ginnie Mae is the only agency that has the _____ of the US Gov’t

A

Direct backing

63
Q

The FHLB primarily loans funds to ______

A

savings and loans institutions

64
Q

The FHLB offers ______ with a face value of ______ and maturities less than ____

A

discount notes with a face value of $100,000 and mature in less than 1 year

65
Q

The FHLB also offers bonds that are ____, have ____ face amounts, and have maturities up to ______

A

callable, have $10,000 face amounts, and maturities up to 30 years

66
Q

Fannie Mae, Ginnie Mae, and Freddie Mac are primarily issuers of ________

A

mortgage-backed pass through certificates

67
Q

MBS pass through certificates are denominated in ______

A

$25,000

68
Q

MBSs are _____ as payments against the underlying mortgages are paying off both ___ and ____

A

MBSs are self-liquidating, as they pay off both interest and principal

69
Q

MBSs have _______ risk because know one really knows the actual maturity of the security

A

prepayment

70
Q

Fannie Mae buys gov’tg guaranteed and insured mortgages such as _____ and _____, as well as conventional mortgages

A

Veterans Administration (VA) and Federal Housing Administration (FHA) mortgages

71
Q

Fannie Mae is ______

A

privatized, was spun off as a separate profit making corporation

72
Q

Ginnie Mae was created the same year as Fannie Mae was spun off, and is the only housing agency still owned and backed by the ______

A

federal gov’t

73
Q

GNMA does not buy ______ mortgages, and only buys ____, _____, and ______ insured mortgages

A

does not buy conventional mortgages, only buys VA, FHA, and Farmer’s Home Administration (FmHA) mortgages

74
Q

Freddie Mac only buys mortgages that are NOT _______

A

guaranteed by the US gov’t

75
Q

The Student Loan Marketing Association is nicknamed _____

A

Sallie Mae

76
Q

Sallie Mae is _____ on the NASDAQ and is not _____

A

listed; not bankrupt

77
Q

For fixed rate mortgages, the early payments are mostly _____, the later payments are mostly _____

A

early mostly interest, later mostly principal

78
Q

Prepayment risk is higher for mortgage pools with _______

A

higher interest rates

79
Q

The PSA in regards to mortgage backed securities is the _____

A

prepayment speed assumption

80
Q

If interest rates drop, there is increased _______ for MBS

A

prepayment risk

81
Q

If interest rates rise, there is increased ______ for MBSs

A

extension risk

82
Q

CMOs were developed to mitigate _____ and _____ risks

A

prepayment and extension

83
Q

Each tranche in a CMO has an _____

A

expected life

84
Q

As monthly interest payments are received in a CMO, the interest is distributed _____ to all the tranches

A

pro-rata

85
Q

As the principal is repaid in a CMO, it is applied for to ______

A

tranche 1

86
Q

CMOs with simple repayment schemes are termed ______

A

“plain vanilla”

87
Q

Newer CMOs divide tranches into _____ and _____ tranches

A

PAC and Companion

88
Q

PAC tranche stands for ________

A

Planned Amortization Class

89
Q

PAC tranches are the _____ (having less ____ and ____ risk), and therefore offer the lowest _____

A

safest, have lowest prepayment or extension risk, and offer lowest yield

90
Q

The Companion tranches are _______ for the PAC - they absorb _____ and _____ risk

A

the shock absorbers for the PAC tranches, absorbing prepayment and extension risk - and offer higher yields

91
Q

In more sophisticated CMO structure, interest payments are still _____ BUT principal repayments made earlier/later than required to the PAC are applied to the ______

A

still pro-rata, but any principal repayments earlier/later than required for the PAC are paid to the companion tranche

92
Q

Another type of tranche is the Targeted Amortization Class, which is a variant of ____

A

PAC

93
Q

A TAC bond offers ______ but not the same amount of protection against _______

A

offers prepayment risk but less protection against extension risk

94
Q

Principal only (PO) and interest only (IO) MBS are created by _____ the stream of interest payments from _______ payments

A

breaking up interest from principal payments

95
Q

PO prices move ____ to interest rates

A

opposite - like a bond

96
Q

IO prices move _____ to interest rates

A

the same

97
Q

CMOs are available in ______ denominations

A

$1,000 (as opposed to $25,000 for pass through certificates)

98
Q

CMOs are quoted in _____

A

1/32nds

99
Q

CMOs are _____ securities

A

non-exempt

100
Q

Trading of gov’t and agency securities takes place solely ______

A

OTC

101
Q

Most agency securities are quoted on a ______ basis

A

yield spread basis

102
Q

Trades of US gov’t securities settle _____

A

next day after trade

103
Q

Trades of agency securities settle _____

A

next day after trade (except MBSs but not tested)

104
Q

Interest for gov’t securities accrues on an ______ basis

A

actual day

105
Q

Interest for agency securities accrues on a ______

A

30 day month / 360 day year basis

106
Q

Interest from gov’t and “unprivatized” agency debt is subject to ______ but is exempt from ______

A

federal income tax, exempt from state/local income tax

107
Q

One “mill” =

A

.001

Series 7 (34 decks)

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