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Series 52 Group Share > FC Ch 1 > Flashcards

FC Ch 1 Flashcards

1
Q

Bondholders are also referred to as ____________.

A

Bondholders are also referred to as creditors.

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2
Q

What is LIBOR?

A

The London Interbank Offered Rate, which is the benchmark against which other rates are compared

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3
Q

Define escrowed to maturity (ETM).

A

When a bond is issued to prerefund an existing bond at its ultimate maturity date

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4
Q

A bond priced at 101 1/2 is equal to what dollar amount?

A

Convert fraction to a decimal: 1 ÷ 2 = .50 and then multiply $1,000 by 101.50% = $1,015.00

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5
Q

$______ is the par value for bonds.

A

$1,000 is the par value for bonds.

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6
Q

Describe inflation or purchasing power risk.

A

The risk that today’s investment will not be worth as much when the money is received in the future.

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7
Q

What does one basis point represent as a percentage?

A

0.01%

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8
Q

A bond with an 8% coupon would pay how much interest per year?

A

$80.00. Par x Rate ($1,000 x 8%)

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9
Q

The money held in escrow from a refunding is invested in _________________________.

A

The money held in escrow from a refunding is invested in U.S. Government securities.

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10
Q

An investor with a long-term need for tax-free funds would consider which type of bond?

A

Zero-coupon municipal

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11
Q

What does a put feature on a bond allow?

A

Bondholders may put (redeem) the bond back to the issuer prior to maturity.

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12
Q

What is level debt service?

A

Each year’s debt service payments remaining generally equal.

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13
Q

Into what does an issuer periodically set aside money for retiring debt?

A

Sinking fund

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14
Q

What type of bond pays all of its interest at maturity?

A

A zero-coupon bond pays all of its interest at maturity.

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15
Q

Which type of bond has no reinvestment risk?

A

A zero-coupon bond

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16
Q

The term ____________ refers to the form of issuance where there are no physical certificates delivered.

A

The term Book Entry refers to the form of issuance where there are no physical certificates delivered.

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17
Q

True or False: The discount on a zero-coupon bond is considered accreted OID interest.

A

True

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18
Q

____________ refers to a situation where an issuer sells a new bond to pay off the debt of an old bond.

A

Refunding refers to a situation where an issuer sells a new bond to pay off the debt of an old bond.

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19
Q

What are bonds called that pay variable rates of return?

A

They are called floating rate, adjustable rate, or variable rate bonds.

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20
Q

The __________________ represents the amount above par that issuers pay to redeem bonds early.

A

The call premium represents the amount above par that issuers pay to redeem bonds early.

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21
Q

When do municipal bond trades settle?

A

Two business days after the trade date (T+2)

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22
Q

Define duration.

A

The measure, expressed in years, of a bond’s price sensitivity to interest rate changes

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23
Q

On what day does the computation of accrued interest begin?

A

The previous interest payment date

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24
Q

What can be determined if given the following bond information? 7% bond, due 6/1/20XX, yielding 8.7%.

A

$70 interest ($35 each 6/1 and 12/1), matures on June 1, 20XX, is a discount since YTM (8.7%) is above the nominal (7%)

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25
Q

True or False: Investors may exercise a bond’s call privilege any time after issuance.

A

False. Only issuers may exercise the call privilege after the call protection period has passed.

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26
Q

True or False: The longer a bond’s duration, the less sensitive the bond’s price is to changes in interest rates.

A

False. The longer the duration, the greater a bond’s price sensitivity to changes in interest rates.

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27
Q

A bond trading at a price of $1,000 is a ______ bond.

A

A bond trading at a price of $1,000 is a par bond.

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28
Q

A bond has a basis of 7 1/4%. This is synonymous with the bond’s __________________.

A

A bond has a basis of 7 1/4%. This is synonymous with the bond’s yield to maturity (YTM).

29
Q

What is the formula for calculating a bond’s current yield?

A

Annual Interest ÷ Current Market Price

30
Q

Define defeasance as it relates to callable bonds.

A

A provision that voids a bond or loan when the borrower sets aside cash or bonds sufficient to pay debt service

31
Q

What are two synonymous terms for a bond’s interest rate?

A

Coupon rate and nominal yield

32
Q

Describe call protection.

A

The number of years after issuance during which bonds may not be called by the issuer

33
Q

A municipal bond’s coupon payment date is the 15th. For that month, how many days remain for accrued interest purposes

A

16, since the interest payment date must be included when counting the days.

34
Q

True or False: An investor who is interested in income and safety of principal should buy a zero-coupon bond.

A

False. Zero-coupon bonds do not provide a payment until maturity and are inappropriate for income seeking investors.

35
Q

Accrued interest on municipal bonds is calculated using ____ days in the month and _____ days in the year.

A

Accrued interest on municipal bonds is calculated using 30 days in the month and 360 days in the year

36
Q

Debt service represents the total of all ____________ and ____________ payments.

A

Debt service represents the total of all principal and interest payments.

37
Q

When an entire bond issue matures on the same date, the bond is referred to as a _______ bond.

A

When an entire bond issue matures on the same date, the bond is referred to as a term bond.

38
Q

True or False: Bonds with call features have higher yields, while bonds with put features have lower yields.

A

True

39
Q

The destruction of a facility that is financed by a bond offering may result in a(n) _____________ call.

A

The destruction of a facility that is financed by a bond offering may result in an extraordinary call.

40
Q

A bond trading at a price below par is a __________ bond.

A

A bond trading at a price below par is a discount bond.

41
Q

The difference between a municipal zero’s issue price and par is called the __________________.

A

The difference between a municipal zero’s issue price and par is called the original issue discount (OID).

42
Q

A bond priced at 98 1/8 is equal to what dollar value?

A

Convert fraction to a decimal: 1 ÷ 8 = .125 and then multiply $1,000 by 98.125% = $981.25.

43
Q

True or False: Delayed delivery is when settlement occurs more than two business days after the trade date.

A

True

44
Q

A ___ provision on a bond helps limit interest-rate risk when interest rates are rising.

A

A put provision on a bond helps limit interest-rate risk when interest rates are rising.

45
Q

If a client buys a book entry bond, how does she receive trade notification?

A

Through her confirmation and account statement

46
Q

When discussing a bond, the YTM may also be referred to as _______.

A

When discussing a bond, the YTM may also be referred to as basis.

47
Q

When executing a refunding, into what account would the new issue proceeds be placed?

A

An escrow account managed by a trustee.

48
Q

A capital appreciation bond (CAB) is a form of ___________ bond.

A

A capital appreciation bond (CAB) is a form of zero-coupon bond.

49
Q

Refunding would most likely occur when interest rates have _________.

A

Refunding would most likely occur when interest rates have fallen.

50
Q

What is the impact on bonds that have been prerefunded?

A

Credit is improved and the issue is considered defeased for the issuer.

51
Q

What is a municipal convertible bond?

A

A zero-coupon or capital appreciation bond (CAB) that may be converted into an interest bearing bond

52
Q

What are the requirements for a bond to be considered depository eligible?

A

The bond must be registered under the Securities Act of 1933 or be exempt from registration

53
Q

What is the formula for determining a bond’s current yield?

A

Annual interest ÷ current market value of the bond

54
Q

Identify the risk of existing bond prices declining while interest rates are rising.

A

Interest rate risk

55
Q

extra

A

extra

56
Q

What does yield-to-maturity (YTM) take into account that current yield does not?

A

Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money

57
Q

If a CAB is issued at $500 and matures at $1,000, what amount would count against a city’s debt limit?

A

$500 would count against a city’s debt limit

58
Q

True or False: Call features are considered a disadvantage to the bondholder.

A

True

59
Q

Bonds with ______ maturities generally have level debt service.

A

Bonds with serial maturities generally have level debt service.

60
Q

If a zero-coupon bond is issued at $500 and matures at $1,000, what amount would count against a city’s debt limit?

A

$1,000 would count against a city’s debt limit

61
Q

A bond trading at a price above par is a ____________ bond.

A

A bond trading at a price above par is a premium bond.

62
Q

The ________________ the duration, the greater the bond’s price sensitivity.

A

The longer/greater the duration, the greater the bond’s price sensitivity.

63
Q

When money flows from the refunded issue to the refunding issue it is referred to as ___________________.

A

When money flows from the refunded issue to the refunding issue it is referred to as crossover refunding.

64
Q

When a bond issue matures on a sequential basis, this is referred to as a _________ bond.

A

When a bond issue matures on a sequential basis, this is referred to as a serial bond.

65
Q

Define level debt service.

A

When total interest and principal payments are generally equal each year

66
Q

True or False: Call provisions are usually considered an advantage to the bondholder.

A

False. Call provisions are an advantage to the issuer.

67
Q

Bond interest is stated ___________ and paid ________________.

A

Bond interest is stated annually and paid semi-annually.

68
Q

True or False: In whole calls are conducted by lottery.

A

False. Partial calls are conducted by lottery.

69
Q

On what day does the computation of accrued interest stop?

A

The day before settlement date

Series 52 Group Share (24 decks)

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