Lecture 1 - Overview of Bond Features

Question 1

Types of issuers

Answer 1

• Federal government and its agencies
• Municipal government
• corporations

Question 2

Term to maturity is…

Answer 2

Date issuer redeems the bond by paying the principal.

- there may be provisions allowing alteration of maturity

Question 3

How is interest realised in a zero coupon bond

Answer 3

Interest is paid at maturity in a zero coupon bond. it is realized by the difference in principal value and discounted price paid for the bond.

Question 4

what happens to floating rate bonds coupon payments.

Answer 4

coupon resets periodically based on the formula given by: reference rate + quoted margin

Question 5

What is LIBOR

Answer 5

London interbank offered rate

is the rate at which the highest credit quality banks borrow from each other in london interbank market.

Question 6

what are linkers?

Answer 6

Linkers are bonds whos interest rates are tied to inflation

Question 7

how is a bond amortized (2 ways)

Answer 7

1. total principal repaid at maturity

2. principal repaid over the life of a bond