Equity & Fixed Income

Question 1

Frequency of interest payments to bondholders

Answer 1

Semiannual

Question 2

Equivalent of 100 basis points

Answer 2

1%

Question 3

Relationship between bond prices and bond yields

Answer 3

Inverse

Question 4

A bond that is priced below par

Answer 4

Discount

Question 5

An unsecured corporate bond

Answer 5

Debenture

Question 6

Most senior form of corporate bond

Answer 6

Secured

Question 7

Security with the most junior claim in a corporate liquidation

Answer 7

Common stock

Question 8

Agency debt that is backed in full by the U.S. government

Answer 8

Ginnie Mae

Question 9

Considered the safest form of debt issued in the U.S.

Answer 9

U.S. Government bonds and notes

Question 10

Taxable at the federal level; may be exempt from taxation at the state level

Answer 10

U.S. Government bonds and notes

Question 11

Of YTC, YTM and CY, the yield that is highest when a bond is trading at a premium and is callable

Answer 11

Nominal Yield

Question 12

Of YTM, YTC and CY, the yield that is highest when a bond is trading at a discount and is callable

Answer 12

Yield to call (YTC)

Question 13

Of YTM, YTC and CY, the yield that is lowest when a bond is trading at a discount

Answer 13

Nominal Yield

Question 14

Of YTM, YTC and CY, the yield that is lowest when a bond is trading at a premium and is callable

Answer 14

Yield to call (YTC)

Question 15

Amount a bondholder receives at maturity of an ABC 9% bond

Answer 15

$1045 (par + 1 semiannual interest payment)

Question 16

Amount of interest paid every 6 months on 5 XYZ 6% bonds

Answer 16

$150 ($30 semiannual interest per bond)

Question 17

Securities that are not represented by a physical certificate

Answer 17

Book Entry securities

Question 18

Interest payment varies based on performance of an index

Answer 18

Variable rate or adjustable rate bonds

Question 19

Fixed rate equity security that responds to market conditions like a bond

Answer 19

Preferred stock

Question 20

The date in the future at which a bondholder receives principal

Answer 20

Maturity

Question 21

Of long-term and short-term bonds, which generally pays a higher interest amount?

Answer 21

Long-term bonds

Question 22

Of long-term and short-term bonds, which generally has lower price volatility?

Answer 22

Short-term bonds

Question 23

The degree of risk associated with an issuer’s ability to repay the principal

Answer 23

Credit or default risk

Question 24

A bond that is rated BBB- or above by Standard and Poor’s

Answer 24

Investment Grade

Question 25

A bond that may be redeemed by the issuer prior to its maturity date

Answer 25

Callable bond

Question 26

Risk that a bond may be called prior to maturity

Answer 26

Call risk

Question 27

The process of calling bonds when interest rates have fallen

Answer 27

Refunding

Question 28

Issuer funds set aside in advance of a call

Answer 28

Sinking fund

Question 29

Allows the issuer to call bonds before maturity if certain specified events occur

Answer 29

Catastrophe clause

Question 30

Specific time period from date of issue when a bond cannot be called

Answer 30

Call Protection Period

Question 31

Type of bond issue that is not typically callable

Answer 31

U.S. Government bonds (Treasury bonds)

Question 32

Risk that proceeds from a called bond cannot be invested as favorably

Answer 32

Reinvestment risk

Question 33

Annual interest divided by current market price

Answer 33

Current Yield (CY)

Question 34

Environment in which longer-term bonds have higher yields than short-term securities

Answer 34

Normal yield curve

Question 35

Corporate instruments with a maturity of no more than 270 days

Answer 35

Commercial paper

Question 36

Maximum maturity of commercial paper

Answer 36

270 days

Question 37

Bonds backed only by the good faith of the issuing corporation

Answer 37

Unsecured bonds or debentures

Question 38

Protects bondholder through a written agreement between issuer and trustee

Answer 38

Trust Indenture

Question 39

Typically backed by real estate holding of a corporation

Answer 39

Mortgage bond

Question 40

Typically secured by other securities owned by the corporation

Answer 40

Collateral Trust bond

Question 41

Secured by physical assets owned by the company

Answer 41

Equipment trust certificates

Question 42

Allow for the exchange of debt for equity issued by the same corporation

Answer 42

Convertible debt

Question 43

The stated number of common shares a bondholder receives upon conversion

Answer 43

Conversion ratio

Question 44

The point at which there is neither profit or loss in a conversion

Answer 44

Conversion parity

Question 45

Purchased at a deep discount; pays no interest during the life of the bond

Answer 45

Zero-coupon bond

Question 46

The amount of interest paid prior at maturity on a Treasury Bill

Answer 46

None, T-Bills are zero coupon securities

Question 47

The price of a bond quoted at 105

Answer 47

$1,050

Question 48

The price of a bond quoted at 97

Answer 48

$970

Question 49

How bond prices are quoted

Answer 49

As a percentage of par

Question 50

The difference in basis points between 6.20% and 6.50%

Answer 50

30 basis points

Question 51

An issuer with outstanding bonds that have a 5% coupon issues similar new bonds with a 6% coupon. The outstanding bonds will trade at a

Answer 51

Discount

Question 52

An issuer with outstanding bonds that have a 5% coupon issues similar new bonds with a 4% coupon. The outstanding bonds will trade at a

Answer 52

Premium

Question 53

An investor buys a 6% bond trading at a 6.5% basis. The bond is purchased at a

Answer 53

Discount

Question 54

An investor buys a 6% bond trading at a 5.5% basis. The bond is purchased at a

Answer 54

Premium

Question 55

An ATT ZR 13 bond will pay how much to the owner at maturity?

Answer 55

$1,000

Question 56

U.S. Government instrument that matures in 1 year or less

Answer 56

Treasury Bill

Question 57

U.S. Government instrument sold through weekly auctions

Answer 57

Treasury Bills

Question 58

U.S. Government instrument that is quoted on an annualized discounted yield basis

Answer 58

Treasury Bill

Question 59

U.S. Government instruments that matures within 2 -10 years

Answer 59

Treasury Note

Question 60

U.S. Government instruments that typically mature in 20 - 30 years

Answer 60

Treasury Bonds

Question 61

U.S. government instruments that are quoted in 32nds

Answer 61

Treasury Notes and Treasury Bonds

Question 62

Inflation-indexed bonds issued by the U.S. Treasury

Answer 62

TIPS

Question 63

U.S. government zero-coupon bond instrument that has no reinvestment risk

Answer 63

STRIP

Question 64

U.S. non-marketable security that is purchased at a 50% discount and matures to face value in 30 years

Answer 64

Series EE bond

Question 65

Three government entities that issue mortgage-backed securities

Answer 65

Ginnie Mae, Fannie Mae and Freddie Mac

Question 66

Government agency that provides student loans

Answer 66

Sallie Mae

Question 67

Investment risk most associated with mortgage-backed securities

Answer 67

Prepayment risk

Question 68

Investment risk that coincides with early payment of a mortgage-backed securities

Answer 68

Reinvestment risk

Question 69

Distinct maturity categories of CMOs

Answer 69

Tranches

Question 70

Frequency of interest payments on mortgage-backed securities

Answer 70

Monthly

Question 71

Mortgage-backed securities with the implied backing of the U.S. government

Answer 71

Fannie Mae and Freddie Mac

Question 72

Debt securities that provide immediate term financing

Answer 72

Money market securities

Question 73

Source of funds for intermediate to long-term financing for corporate buyers

Answer 73

Capital markets

Question 74

Denomination of CMOs

Answer 74

$1,000

Question 75

Protects convertible bondholders from a reduction in ownership percentage

Answer 75

Anti-dilution covenant

Question 76

The relationship of the coupon rate of a corporation’s convertible debt to its non-convertible debt

Answer 76

Lower

Question 77

The corporate practice of raising money to call outstanding bonds

Answer 77

Refunding

Question 78

Bonds sold at a deep discount because of their credit rating

Answer 78

Junk bonds

Question 79

When interest is paid on 5M XYZ F&A 15 6s bond

Answer 79

February and August 15

Question 80

The identification number of a bond issue

Answer 80

CUSIP number

Question 81

A bond that is held in the bondholder’s name

Answer 81

Registered bond

Question 82

The type of risk rated by Moody’s, Standard & Poor’s and Fitch

Answer 82

Default or Credit Risk

Question 83

The risk that the issuer will not be able to pay the principal and interest owed on outstanding debt securities

Answer 83

Default or Credit Risk

Question 84

Amount above par that an issuer may pay to call bonds

Answer 84

Call premium

Question 85

A bond which can be sold at face value to the issuer prior to maturity at pre-determined times

Answer 85

Puttable bond

Question 86

The formula for computing current yield

Answer 86

Annual interest divided by current market price

Question 87

Another name for the coupon yield, which is set at the issuance of the bond

Answer 87

Nominal

Question 88

Graphically depicts the yield relationship between long- and short-term bonds

Answer 88

Yield curve

Question 89

Corporate secured bonds that have the highest priority claim

Answer 89

Mortgage bonds

Question 90

Type of corporate security that is backed by the title to newly acquired equipment

Answer 90

Equipment trust certificate

Question 91

Two companies that rate bond issues

Answer 91

Moody’s and Standard and Poor’s

Question 92

Type of bonds often issued by corporations emerging from bankruptcy that pay interest only if income is available

Answer 92

Income bond

Question 93

The stock price at which a convertible bond can be exchanged for shares of common stock

Answer 93

Conversion price

Question 94

Federal and state tax treatment of most municipal debt interest

Answer 94

Exempt from taxation at the federal level; may be taxable at the state level

Question 95

Tax treatment of capital gains from sales of municipal bonds

Answer 95

Taxable

Question 96

Three entities authorized to issue municipal debt

Answer 96

U.S. territories, State governments, local taxing authorities like county and city governments and certain authorities

Question 97

Full faith and credit municipal issues

Answer 97

General Obligation bonds

Question 98

Backing for Municipal General Obligation Bonds

Answer 98

Municipality’s taxing authority

Question 99

Percentage of net investment income that a REIT must distribute to avoid corporate taxation

Answer 99

90%

Question 100

For a REIT, the minimum percentage of investment assets that must be invested in real estate

Answer 100

75%

Question 101

The minimum percentage of gross income that a REIT must derive from rents or mortgage interest

Answer 101

75%

Question 102

Where REIT shares or certificates of beneficial interest can be purchased

Answer 102

OTC or on stock exchange

Question 103

Pools of real estate assets that pass through real estate income but not losses

Answer 103

REIT

Question 104

Demand Deposit Account

Answer 104

A type of bank product where the customer can withdraw funds without advance notice to the bank (i.e. on demand). Examples include checking or savings accounts.

Question 105

Time Deposits

Answer 105

A bank product where a customer agrees to deposit funds and not withdraw for a set period of time. Over the period the investor will earn a set interest rate. Early withdrawals can result in penalties. Examples include CDs.