Fixed Income Flashcards
During a period where the yield curve is flat…
short term rates are more volatile than long term rates
Any bond selling at a premium will yield…
less than the coupon or nominal yield
Treasury securities are subject to…
interest rate risk
If a customer’s chief concern is to shelter as much portfolio earnings from tax as possible, which of the following would be most suitable?
A. Money Market Instruments
B. Municipal GOs
C. High-Yield Bonds
D. Treasury Receipts
B. Municipal GOs
Interest is exempt from federal tax & perhaps state income tax depending on the investor’s residency
When the market IR is 8%, which of the following equally-rated bonds will have the potential for the greatest relative price volatility to changes in IR?
A. 12% Coupon; 6 years to maturity
B. 8% Coupon; 12 years to maturity
C. 12% Coupon; 12 years to maturity
D. 8% Coupon; 6 years to maturity
B. 8% Coupon; 12 years to maturity
the bond with the lowest coupon & longest maturity is subject to the greatest price volatility
In general, one would prefer to purchase a bond when its current market price is…
less than it’s present value
Current IRS regulations permit an unlimited contribution to which tax-deferred plans?
Annuities
Double Barreled Bond
is backed by a specific source of revenue as well as the full faith & credit of the issuer with ad valorem taxing power
The coupon/nominal yield is…
the rate stated on the face of the bond that never changes
Funds obtained from a policy loan are not considered taxable income, but if the amount received at policy surrender is greater than the cost basis, the excess is taxed as…
ordinary income
When a bonds IRR equals the required rate of return (the discount rate), the NPV of that bond…
is zero
A client has been contributing to a periodic payment annuity for 20 years. The mortality & expense (M&E) is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68?
it ceases
Money Market Instruments
High quality debt instruments that will mature in 1 year or less
- CDs
- Treasury Bills
- Commercial paper
- Repurchase agreements
3 qualities of universal life insurance
- may include a minimum guaranteed IR
- offers the policy owner exceptional flexibility in adjusting the premiums, cash value & death benefit
- there are 2 death benefit options
When a bond’s coupon yield is lower than its current yield, that is an indication that the bond…
is selling at a discount
tax-equivalent yield of a municipal bond equals…
tax-free yield / 100% - tax rate