Fixed Income Securities

Question 1

What is a Treasury Bond?

Answer 1

A Treasury Bond is a long-term debt security issued by the U.S. Department of the Treasury with a maturity of more than 10 years.

Question 2

True or False: Treasury Bonds pay interest every six months.

Answer 2

True

Question 3

What is the primary purpose of issuing Treasury Bonds?

Answer 3

The primary purpose is to finance government spending and obligations.

Question 4

Fill in the blank: Treasury Bonds are considered to be ______ risk-free investments.

Answer 4

low

Question 5

What is the typical maturity range for Treasury Bonds?

Answer 5

More than 10 years.

Question 6

What are Agency Bonds?

Answer 6

Agency Bonds are debt securities issued by government-sponsored enterprises (GSEs) or federal agencies.

Question 7

True or False: Agency Bonds are always backed by the full faith and credit of the U.S. government.

Answer 7

False

Question 8

What is one advantage of Agency Bonds compared to corporate bonds?

Answer 8

Agency Bonds typically have lower yields due to their perceived lower risk.

Question 9

Multiple Choice: Which of the following is an example of a government-sponsored enterprise? A) Fannie Mae B) Microsoft C) ExxonMobil

Answer 9

A) Fannie Mae

Question 10

What are Mortgage-Backed Securities (MBS)?

Answer 10

Mortgage-Backed Securities are asset-backed securities that are secured by a collection of mortgages.

Question 11

True or False: MBS can provide investors with regular income from mortgage payments.

Answer 11

True

Question 12

Fill in the blank: MBS are often issued by _______ or other financial institutions.

Answer 12

banks

Question 13

What is the main risk associated with Mortgage-Backed Securities?

Answer 13

Prepayment risk, where borrowers pay off their mortgages early.

Question 14

What does the term ‘spread’ refer to in fixed income securities?

Answer 14

The spread refers to the difference in yield between different bonds, often indicating risk levels.

Question 15

Multiple Choice: Which bond is generally considered the safest? A) Corporate Bonds B) Treasury Bonds C) Municipal Bonds

Answer 15

B) Treasury Bonds

Question 16

What is a coupon payment?

Answer 16

A coupon payment is the interest payment made to bondholders, typically on a semiannual basis.

Question 17

True or False: The yield on a bond increases as its price decreases.

Answer 17

True

Question 18

What is the main difference between a Treasury Bond and a Treasury Note?

Answer 18

The main difference is the maturity period; Treasury Notes have maturities of 2 to 10 years, while Treasury Bonds have maturities of more than 10 years.

Question 19

Fill in the blank: The interest rate environment can affect ______ of fixed income securities.

Answer 19

pricing

Question 20

What does ‘duration’ measure in fixed income securities?

Answer 20

Duration measures the sensitivity of a bond’s price to changes in interest rates.

Question 21

Multiple Choice: Which type of bond typically has higher yields due to higher risk? A) Treasury Bonds B) Corporate Bonds C) Agency Bonds

Answer 21

B) Corporate Bonds

Question 22

What is the significance of the credit rating of a bond?

Answer 22

The credit rating indicates the creditworthiness of the bond issuer and the likelihood of default.

Question 23

True or False: All Mortgage-Backed Securities are guaranteed by the government.

Answer 23

False

Question 24

What is a callable bond?

Answer 24

A callable bond is a bond that can be redeemed by the issuer before its maturity date.

Question 25

Fill in the blank: Investors may face ______ risk when investing in fixed income securities during rising interest rate environments.

Answer 25

market

Question 26

What is the purpose of a bond’s indenture?

Answer 26

The indenture is a legal document that outlines the terms and conditions of the bond agreement.