FIXED INCOME

Question 1

A structured security is a combination of:

Answer 1

a medium-term note (MTN) and a derivative

Question 2

structured securities

Answer 2

negotiated to better fit the requirements of the investor

regular structure, plus a bonus that gives asset benefits

Question 3

Consider $1,000,000 par value, 10-year, 6.5% coupon bonds issued on January 1, 20X5. The market rate for similar bonds is currently 5.7%. A sinking fund provision requires the company to redeem $100,000 of the principal each year. Bonds called under the terms of the sinking fund provision will be redeemed at par. A bondholder would:

Answer 3

prefer not to have her bonds called because the market rate is bellow the coupon rate, meaning the bond is at a premium. Having it called under the sinking provision would negate the effects.

Question 4

A yield curve for coupon bonds is composed of yields on bonds with similar:

Answer 4

issuers

think government bonds to AA corp bonds

Question 5

Matrix pricing is used primarily for pricing bonds that:

Answer 5

have low liquidity