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Fixed Income > Fixed Income 1 > Flashcards

Fixed Income 1 Flashcards

1
Q

Fixed income security

A

A financial obligation where the issuer promises to pay a specified sum of money at specified future dates.

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2
Q

Issuer

A

The entity that borrows money by issuing a fixed income security.

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3
Q

Creditor

A

The lender or investor in a fixed income security.

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4
Q

Coupon rate

A

The interest rate that the issuer agrees to pay annually on the bond’s face value.

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5
Q

Face value (par value)

A

The amount the issuer agrees to repay at maturity.

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6
Q

Maturity

A

The time until the issuer returns the bond’s face value to the creditor.

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7
Q

Bonds

A

A type of fixed income security representing a loan from the investor to the issuer.

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8
Q

Mortgage-backed security

A

A bond secured by a pool of mortgages.

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9
Q

Preferred stock

A

Equity with fixed dividend payments, but no maturity date.

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10
Q

Asset-backed securities (ABS)

A

Securities backed by a pool of loans or receivables.

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11
Q

Par value

A

The face value or principal amount of a bond, which is repaid at maturity.

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12
Q

Coupon

A

The periodic interest payment made to bondholders during the bond’s life.

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13
Q

Zero-coupon bond

A

A bond that pays no interest and is sold at a discount, with the difference between purchase price and face value representing the interest earned.

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14
Q

Floating-rate note (FRN)

A

A bond whose coupon rate varies according to a reference interest rate.

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15
Q

Step-up note

A

A bond with a coupon rate that increases over time.

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16
Q

Bullet maturity

A

A bond where the entire principal is repaid at the maturity date.

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17
Q

Amortizing bond

A

A bond with a repayment schedule that includes both interest and part of the principal.

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18
Q

Sinking fund provision

A

A requirement for the issuer to periodically repay portions of the bond’s principal before maturity.
Either in the open market or by calling some bonds chosen by lottery.

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19
Q

Callable bond

A

A bond that gives the issuer the option to repay it before its maturity date.

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20
Q

Putable bond

A

A bond that allows the bondholder to sell it back to the issuer at a specified price before maturity.

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21
Q

Convertible bond

A

A bond that gives the bondholder the option to convert it into a specified number of shares of the issuer’s stock.

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22
Q

T-bill

A

A U.S. Treasury security with a maturity of less than one year, issued at a discount and repaid at par value.

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23
Q

T-note

A

A U.S. Treasury security with a maturity between 1 and 10 years, paying periodic interest.

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24
Q

T-bond

A

A U.S. Treasury security with a maturity of more than 10 years, paying periodic interest.

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25
Q

Treasury STRIPS

A

A zero-coupon security created by separating the interest and principal payments of a Treasury bond or note.

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26
Q

Mortgage loan

A

A loan secured by real estate, where the lender can foreclose if the borrower fails to make payments.

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27
Q

Prepayment risk

A

The risk that a borrower will repay a loan before its scheduled maturity, affecting the return on mortgage-backed securities.

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28
Q

Collateralized mortgage obligation (CMO)

A

A structured bond where the principal and interest from a pool of mortgages are redistributed to bondholders in tranches.

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29
Q

Credit risk

A

The risk that an issuer will default on its payment obligations.

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30
Q

Yield-to-maturity (YTM)

A

The interest rate that equates the present value of a bond’s cash flows to its price.

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31
Q

Reinvestment risk

A

The risk that future coupon payments will be reinvested at a lower rate than the bond’s original yield.

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32
Q

Yield to call (YTC)

A

The interest rate calculated assuming the bond will be called at the earliest possible date.

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33
Q

Yield to worst (YTW)

A

The lowest potential yield of a bond, considering all possible redemption scenarios (e.g., calls, puts, maturity).

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34
Q

Current yield

A

The annual coupon payment divided by the bond’s current price.

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35
Q

Liquidity risk

A

The risk of being unable to sell a bond quickly at its fair market value.

36
Q

Sovereign bond

A

Debt issued by a national government.

37
Q

Default risk

A

The risk that the issuer will fail to make timely payments of interest or principal.

38
Q

Yield spread

A

The difference in yields between two bonds, often reflecting differing risks.

39
Q

Inflation risk

A

The risk that inflation will erode the purchasing power of a bond’s future cash flows.

40
Q

Duration

A

A measure of a bond’s sensitivity to interest rate changes, representing the weighted average time to receive the bond’s cash flows.

41
Q

continue

A

ChatGPT ha detto:

42
Q

Credit spread

A

The difference in yield between a non-Treasury bond and a U.S. Treasury bond of similar maturity, reflecting the additional risk of the non-Treasury bond.

43
Q

Interest rate risk

A

The risk that the value of a bond will decrease due to rising interest rates.

44
Q

Yield curve

A

A graph that shows the relationship between bond yields and maturities.

45
Q

Parallel shift

A

A situation where interest rates for all maturities increase or decrease by the same amount.

46
Q

Non-parallel shift

A

A change in the yield curve where interest rates for different maturities change by varying amounts.

47
Q

Callable provision

A

A feature that allows the issuer to repay the bond before the maturity date, typically when interest rates have declined.

48
Q

Put provision

A

A feature that allows the bondholder to sell the bond back to the issuer at a specified price before maturity.

49
Q

Transition matrix

A

A tool used to track the probability of a bond being upgraded or downgraded by credit rating agencies over a specific time period.

50
Q

Liquidity

A

The ease with which a bond can be bought or sold in the market without affecting its price.

51
Q

Event risk

A

The risk that a specific event, such as a natural disaster or corporate restructuring, will negatively impact the issuer’s ability to repay bondholders.

52
Q

Sovereign risk

A

The risk that a foreign government will default on its debt or make unfavorable changes to the terms of repayment due to political or economic changes.

53
Q

Volatility risk

A

The risk that changes in the volatility of interest rates will affect the price of bonds with embedded options.

54
Q

Callable bond price

A

The price of a callable bond is the price of a similar option-free bond minus the price of the embedded call option.

55
Q

Putable bond price

A

The price of a putable bond is the price of a similar option-free bond plus the price of the embedded put option.

56
Q

Capital gain

A

The profit realized when a bond is sold for more than its purchase price.

57
Q

Capital loss

A

The loss realized when a bond is sold for less than its purchase price.

58
Q

Total return

A

The overall return on a bond, which includes coupon payments, capital gains or losses, and reinvestment income.

59
Q

Horizon analysis

A

An analysis that estimates the total return of a bond over a specific investment horizon.

60
Q

Coupon interest payments

A

Periodic interest payments made to bondholders, typically semi-annually or annually.

61
Q

Reinvestment income

A

The interest income generated from reinvesting coupon payments and principal repayments before the bond’s maturity.

62
Q

Yield to put (YTP)

A

The interest rate that will make the present value of a bond’s cash flows equal to its price, assuming it is put back to the issuer at the put date.

63
Q

Accrued interest

A

Interest that has accumulated since the last coupon payment but has not yet been paid.

64
Q

Clean price

A

The price of a bond excluding any accrued interest.

65
Q

Dirty price (gross price)

A

The price of a bond including accrued interest.

66
Q

Call price / Redemption price

A

The price at which a bond can be redeemed before maturity under its call provision.

67
Q

Put price

A

The price at which a bondholder can sell a bond back to the issuer before maturity under its put provision.

68
Q

Inflation-indexed bonds

A

Bonds whose principal and interest payments are adjusted for inflation to protect the investor from inflation risk.

69
Q

Step-up coupon bond

A

A bond that pays a coupon rate that increases at predetermined intervals.

70
Q

Floating-rate security

A

A bond whose coupon rate is periodically adjusted based on a reference rate, such as LIBOR or the Treasury bill rate.

71
Q

TIPS (Treasury Inflation-Protected Securities)

A

U.S. Treasury bonds that provide protection against inflation by adjusting the principal based on changes in the Consumer Price Index (CPI).

72
Q

Premium bond

A

A bond trading above its face value because its coupon rate is higher than the prevailing market interest rates.

73
Q

Discount bond

A

A bond trading below its face value because its coupon rate is lower than the prevailing market interest rates.

74
Q

Callable bond yield

A

The yield calculated assuming the bond is called at the earliest possible date.

75
Q

Maturity date

A

The date when the bond’s principal is due to be repaid to the bondholder.

76
Q

Sovereign debt / bond

A

Debt issued by a national government, usually considered to have low default risk when issued by stable governments.

77
Q

Corporate bonds

A

Debt securities issued by corporations to raise capital, often with higher risk and yield than government bonds.

78
Q

Agency bonds

A

Bonds issued by government-sponsored enterprises (GSEs) or federal agencies, typically with lower risk than corporate bonds.

79
Q

Term spread

A

The difference between yields on bonds with different maturities, often used to gauge economic expectations.

80
Q

Default rate

A

The percentage of issuers expected to default on their debt obligations over a specified period.

81
Q

Recovery rate

A

The percentage of the bond’s face value that investors expect to recover in the event of a default.

82
Q

Duration

A

A measure of the sensitivity of a bond’s price to changes in interest rates.

83
Q

Convexity

A

A measure of the curvature in the relationship between bond prices and yields, indicating how duration changes with interest rates.

84
Q

Yield-to-worst (YTW)

A

The lowest possible yield that can be received on a bond without the issuer defaulting.

85
Q

Yield-to-call (YTC)

A

The yield of a bond assuming it is called before its maturity date.

86
Q

Annuity

A

Every year you get the same coupon, which includes a interest and principal. The component of interest therefore decreases over time.

Fixed Income (5 decks)

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