Debt Flashcards
Term bonds all have the same _____ and _____
interest rate and maturity
Serial bonds have different _____ and _____
interest rates and maturities
Series bonds have the same _____ but different _____
same dates of maturity but different dates of issuance
Term bonds are quoted on a ______ basis
percentage of par (dollar bonds)
Corp bonds are quoted at a minimum of ____, while gov’t bonds are quoted at a minimum of ____
1/8th; gov’t at 1/32nd
Serial bonds (munis are typically serial bonds) are quoted on a ______ basis
yield
The approx. price of a bond quoted on a yield basis is =
= coupon / basis
The most volatile bonds in regards to interest rate movements are ________
long term, zero coupon bonds
For zero coupon bonds, the duration is equal to the ______
time to maturity
The nominal yield is the stated rate of _____ on the bond
state rate of interest
The current yield takes into account the _____ of the bond, and is calculated as =
market price, calculated as = income / mkt price
The yield to maturity takes into account the market price of the bond as well as any ______ or ______
discount or premium
YTM =
= (annual income +/- discount/premium) / ((purchase price + redemption price)/2)
Call protection is typically ______
10 years
Call prices tend to set a _____ for bond prices as interest rates _____
set a ceiling as interest rates fall
Zero coupon bonds are called at the current _______ plus a call premium
accreted value
Put features set a ____ for bond prices when interest rates are _____
set a floor when interest rates are rising
For a discount bond, the YTC is _____ than the YTM
Greater
For a premium bond, the YTC is _____ than the YTM
less
Moody’s ratings for commercial paper are _____-
P1, P2, P3, NP
Moody’s ratings for municipal notes are ______
MIG 1, MIG 2, MIG 3, SG
The only bonds that avoid reinvestment risk are ____-
zero coupon bonds
An expanding spread of the yield curve indicates an impending _____
recession
A registered to principal only bond has the _____- registered to the owner but the bond still has _____
principal is registered to the owner, but the bond still has bearer coupons
All corporate issues over _____ must have a trust indenture
$50m
Sometimes long-term corp debt is termed _____ debt
funded
Open end trust indentures allow the corporations to sell additional ____ having equal status against the real estate
sell additional bonds
Closed-end trust indentures mean that the corporation can sell additional bonds only if they are _____ to the existing bonds
junior
Equipment trust certificates are issued in _____ form
serial
Maturity for commercial paper will never exceed _____
270 days
Commercial paper is issued at a _____ and comes in minimum denominations of ______
issued at a discount and comes in denominations of $100,000
Income bonds are used during _____ and only pay interest if there is enough _____
used during bankruptcy and only pay interest if there is sufficient income earned (also called adjustment bonds)
Income bonds will trade _____
flat - ie without any accrued interest
Parity of bond price for a convertible bond =
= conversion ratio x stock’s mkt price
Parity price of stock for a convertible bond =
= bond mkt value / conversion ratio
When a convertible bond is trading above par, the price is being most influenced by the _____
stock mkt price (when below par, influenced by interest rates)
To issue convertible bonds, the corporation needs ______
shareholder approval (because of the potential dilutive effect)
The conversion price on convertible bonds is adjusted for ______ and _____
stock dividends and stock splits
Cash settlements for bonds occurs the _____ before ____
same day before 230pm
Corp bonds settle through the _____, the deposits are known as _____
NSCC, funds known as “clearing house funds”
Gov’t bonds, gov’t agency securities, and mortgage-back securities settle in _____ through the _____
settle in fed funds through the FICC
Corp bonds accrue interest on a ______ basis
30 day month / 360 day year
Savings bonds (EE bonds) are _______ and cannot be traded; they are bought directly from the ____ and can be redeemed with the _____
are non-negotiable and are bought/redeemable with the gov’t
Agency debt is not guaranteed by the ____, but there is an implicit promise to pay in default
US gov’t
One agency’s debt is backed by the gov’t — ____
GNMA
Treasury bonds have a maturity of _____, come in denominations of ____, and pay interest _______
30 years; $100; semi-annually
Treasury receipts were the original version of _____ and are no longer created (they were sold by brokers).
original version of STRIPS
TIPS have a fixed ______ but the _____ is adjusted every _____ in accordance with the CPI
have a fixed interest rate but the principal is adjusted every 6 months with inflation
Treasury notes are ______ term securities with maturities ranging from ___ to ____
intermediate; maturities ranging from 1-10 years
T-Notes are denominated in _____ and pay interest _____
$100; pay interest semi-annually
T-Bills are quoted on a ______ basis
discount yield
Cash Management Bills (CMBs) are very short term treasury securities with maturities that range from ___ days to ____ months
5 days to 6 months
CMBs are sold on an ______ basis (not at regularly scheduled auctions)
as-needed
CMBs are sold in ____ min amounts and pay slightly _____ than T-Bills
$100; slightly more
Fed Farm Credit discount notes mature in ______ or less, sold at a discount to min face value of ____, and yield ____ than equivalent T-Bills
1 year or less; $5,000 min face value; yield more than equivalent T-Bills
Fed Farm Credit designated bonds are _______, pay interest _____, and have maturities of _____
non-callable; pay interest semi-annually, and have maturities of 2-10 years (face is also $5,000)
Fed Farm Credit bonds are _____, pay interest _____, and have maturities up to _____
callable, semi-annually, and maturities up to 30 years ($5,000 face value OR can be floating at min $100,000)
THe FHLB is the ______
Federal Home Loan Banks
Fannie Mae is _______
Federal National Mortgage Association
Ginnie Mae is ______
Government National Mortgage Association
Freddie Mac is _____
Federal Home Loan Mortgage Corporation
Ginnie Mae is the only agency that has the _____ of the US Gov’t
Direct backing
The FHLB primarily loans funds to ______
savings and loans institutions
The FHLB offers ______ with a face value of ______ and maturities less than ____
discount notes with a face value of $100,000 and mature in less than 1 year
The FHLB also offers bonds that are ____, have ____ face amounts, and have maturities up to ______
callable, have $10,000 face amounts, and maturities up to 30 years
Fannie Mae, Ginnie Mae, and Freddie Mac are primarily issuers of ________
mortgage-backed pass through certificates
MBS pass through certificates are denominated in ______
$25,000
MBSs are _____ as payments against the underlying mortgages are paying off both ___ and ____
MBSs are self-liquidating, as they pay off both interest and principal
MBSs have _______ risk because know one really knows the actual maturity of the security
prepayment
Fannie Mae buys gov’tg guaranteed and insured mortgages such as _____ and _____, as well as conventional mortgages
Veterans Administration (VA) and Federal Housing Administration (FHA) mortgages
Fannie Mae is ______
privatized, was spun off as a separate profit making corporation
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 ______
federal gov’t
GNMA does not buy ______ mortgages, and only buys ____, _____, and ______ insured mortgages
does not buy conventional mortgages, only buys VA, FHA, and Farmer’s Home Administration (FmHA) mortgages
Freddie Mac only buys mortgages that are NOT _______
guaranteed by the US gov’t
The Student Loan Marketing Association is nicknamed _____
Sallie Mae
Sallie Mae is _____ on the NASDAQ and is not _____
listed; not bankrupt
For fixed rate mortgages, the early payments are mostly _____, the later payments are mostly _____
early mostly interest, later mostly principal
Prepayment risk is higher for mortgage pools with _______
higher interest rates
The PSA in regards to mortgage backed securities is the _____
prepayment speed assumption
If interest rates drop, there is increased _______ for MBS
prepayment risk
If interest rates rise, there is increased ______ for MBSs
extension risk
CMOs were developed to mitigate _____ and _____ risks
prepayment and extension
Each tranche in a CMO has an _____
expected life
As monthly interest payments are received in a CMO, the interest is distributed _____ to all the tranches
pro-rata
As the principal is repaid in a CMO, it is applied for to ______
tranche 1
CMOs with simple repayment schemes are termed ______
“plain vanilla”
Newer CMOs divide tranches into _____ and _____ tranches
PAC and Companion
PAC tranche stands for ________
Planned Amortization Class
PAC tranches are the _____ (having less ____ and ____ risk), and therefore offer the lowest _____
safest, have lowest prepayment or extension risk, and offer lowest yield
The Companion tranches are _______ for the PAC - they absorb _____ and _____ risk
the shock absorbers for the PAC tranches, absorbing prepayment and extension risk - and offer higher yields
In more sophisticated CMO structure, interest payments are still _____ BUT principal repayments made earlier/later than required to the PAC are applied to the ______
still pro-rata, but any principal repayments earlier/later than required for the PAC are paid to the companion tranche
Another type of tranche is the Targeted Amortization Class, which is a variant of ____
PAC
A TAC bond offers ______ but not the same amount of protection against _______
offers prepayment risk but less protection against extension risk
Principal only (PO) and interest only (IO) MBS are created by _____ the stream of interest payments from _______ payments
breaking up interest from principal payments
PO prices move ____ to interest rates
opposite - like a bond
IO prices move _____ to interest rates
the same
CMOs are available in ______ denominations
$1,000 (as opposed to $25,000 for pass through certificates)
CMOs are quoted in _____
1/32nds
CMOs are _____ securities
non-exempt
Trading of gov’t and agency securities takes place solely ______
OTC
Most agency securities are quoted on a ______ basis
yield spread basis
Trades of US gov’t securities settle _____
next day after trade
Trades of agency securities settle _____
next day after trade (except MBSs but not tested)
Interest for gov’t securities accrues on an ______ basis
actual day
Interest for agency securities accrues on a ______
30 day month / 360 day year basis
Interest from gov’t and “unprivatized” agency debt is subject to ______ but is exempt from ______
federal income tax, exempt from state/local income tax
One “mill” =
.001
