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SIE > Debt Securities > Flashcards

Debt Securities Flashcards

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SIE Exam flashcards
1
Q

What is the assumed par value for bonds

A

1K

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2
Q

Whats another name for the par value

A

the principal
face value

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3
Q

What are the different maturities for bonds

A

term
serial
balloon

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4
Q

What is a term bond

A

mature all at once

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5
Q

What is a serial bond

A

portions oof the bond mature over time

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6
Q

What is a balloon bond

A

combo of serial and term, small pay back before maturity date then the majority at maturity

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7
Q

What is a coupon rate

A

the interest rate

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8
Q

Instead of coupon rate, what might the interest rate fo a bond be called

A

nominal yield
stated yield

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9
Q

How is bond pricing measured

A

in points with a point being 1% of par
bond is trading at 90
but really its 90 X 10 so 900

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10
Q

for the overall yield of a bond, what are the different ways to calculate it

A

coupon/nominal
Current yield: take the annual coupon paid out / market price
Yield to Maturity: if held to maturity than this measure the return by considering a discount or premium at purchase
Yield to Call: bond can be called to be redeemed by the issuer before maturity

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11
Q

If you see a bond trading on a “basis of” then

A

see if it then provides a yield if it does then the yield is YTM

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12
Q

What is a call and put feature of a bond

A

call - the issuer can call the bond mature now
Put - the owner of the bond can sell the bond back to the issuer

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13
Q

Why would a put feature on a bond be advantageous

A

if market coupons rise to 8% when you have a 6% coupon, then you can sell the bond back, and reinvest at market coupon

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14
Q

With call features on bonds what is a coupon consideration

A

likely needs to be higher to compensate for the risk of being called

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15
Q

What is a put feature on a bond

A

exact opposite of a call feature

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16
Q

What is it called when a convertible bond is valued exactly at the price of the shares it can convert into

A

parity

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17
Q

Zero coupon bonds issued by the Treasury are called

A

STRIPS

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18
Q

A basket of STRIPS made by a BD is called

A

Treasury receipts

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19
Q

What is the main difference between treasury receipts and STRIPS

A

Treasury receipts arent backed by the gov

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20
Q

What can enhance the safety of a debt security

A

collateral

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21
Q

What is the general layout of the letter grades for bonds

A

A is slightly susceptible to economic conditions
BBB slightly speculative and is the last of investment grade
BB significant chance the issuer could miss an interest payment
Everything below BB \ Ba could miss interest payments

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22
Q

Why are bond prices and interest rates inverse

A

if you have a bond at 5% and the interest rate drop to 3%, the new bonds will be 3% so your 5% bond is more valuable

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23
Q

What bonds are considered secured debt

A

mortgage bonds
equipment Trust certificates (like having the train cars of a railroad company be the collateral to the loan that bought them)
collateral trust bonds (the collateral are treasury stocks or stocks and bonds from other issuers)

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24
Q

Consideration for collateral trust bonds

A

the stock or bond collateral must be liquid

25
Q

Examples of unsecured debt

A

debentures (corporate bonds back only by an IOU)
Guaranteed bonds (same as debentures but parent company picks up the bill if the issuing corp defaults)
income bonds (after reorg or default, the corp only pays interest if it has enough income)
Subordinated debt (the lowest level of any unsecured debt)

26
Q

What debt securities settle T+2 and accrue interest on a 30mo/360day year

A

Corp debt
munis

27
Q

What are the types of munis

A

GO bonds
revenue bond

28
Q

What is a GO bond

A

issued for a capital improvement
usu doesnt produce income so interest is paid by other revenue sources
usu require voter approval

29
Q

What are revenue bonds

A

the prin and int are supported by the income that project gens
usu doesnt need voter approval

30
Q

What is a consideration of a revenue bond from an authority

A

Each bond from them may only be backed by a portion of the auths income not all
ex: a bond for a bridge only back by the income from that bridge

31
Q

What are the different US Treasury debts in order of maturity

A

T bills
T notes
Tbonds

32
Q

Characteristics of T bills

A

less than a year
no interest instead sold at discount to par then redeemed at par at maturity
the 13wk/90day T bill is oft used in market analysis as the risk free investment

33
Q

Characteristics of T notes

A

2-10 years
semiannual interest

34
Q

Characteristics of T bonds

A

10-30 years
semiannuual interest

35
Q

What is the settlement time and interest accrual schedule of US Treasury securities

A

T+1
interest on actual days elapsed

36
Q

What are TIPS

A

Treassury Inflation protected secs

37
Q

What are some considerations with TIPS

A

Value of the principal adjusts with inflation every 6mo
interest paid ev 6mo
Payment at will never be less than the 1000 par

38
Q

Who else is given auth to issue national gov debt

A

Farm credit admin
Fannie mae
Freddy mac
Ginnie mae

39
Q

Characteristics of ginnie mae secs

A

backed by US
oversees HUD

40
Q

What kind of risk would be associated with ginnie mae

A

prepayment risk if matured early (aka people paid off their mortgages early)

41
Q

Freddy mac does what

A

helps create a secondary market for mortgages by creating MBS’s

42
Q

Fannie mae does what

A

buys mortgages from FHA and VA

43
Q

What are money market secs

A

fixed income debt secs with 1yr or less to maturirty

44
Q

What are some examples of money market securities

A

Jumbo CDs
Bankers acceptances
Commercial paper
T bills
Repos
Federal funds loans

45
Q

What are jumbo CDs

A

an unsecured promissory note from a bank that is sold at face value and pays interest at maturityW

46
Q

consideration for bank issue/jumbo CDs

A

only considered money market instrument if traded on secondary market

47
Q

What are Bankers acceptances

A

maturity of less than 270
discount to par
often usu by import export businesses

48
Q

What is commercial paper

A

270 or less maturity
unsecured debt from a corp

49
Q

What consideration for T notes and bonds and money market secs

A

if less than a year to maturity, they are considered money market instruments

50
Q

What are Repos

A

agreement to sell an asset now and repurchase for a slightly higher price later

51
Q

What are federal funds loans

A

member banks of the Federal Reserve Board need to maintain certain reserve with them and if their is excess the FED can overnight loan to other members so they can maintain they reserve requirements

52
Q

What are some asset backed secs

A

CMOs
CDOs

53
Q

What are CMOs

A

collateralized mortgage obligations
pools of mortgages sctructured into maturity classes called tranches

54
Q

How are P&I structured with CMOs

A

both paid monthly but the principal is paid one tranche at a time

55
Q

What can effect the flow of P&I of a CMO to its investors and why

A

changes to interest rates bec of refinancing

56
Q

What are CDOs

A

mult types of debt usu not mortgages

57
Q

What are the debt types and their risks called for CMOs and CDOs

A

tranches or slices

58
Q

What are tranches or slices

A

maturity classes of CDO or CMO that come with their own risk/reward combos

59
Q
A

SIE (17 decks)

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