SIE Unit 3

Question 1

Balloon Bond

Answer 1

Issuer repays part of bond’s maturities before final maturity date but pays off the major portion at final maturity

Question 2

Convertible Feature

Answer 2

Investor can convert bond into shares of common stock

Question 3

Parity

Answer 3

Value of convertible bond equals value of shares an investor would receive if conversion feature were exercised

Question 4

Duration

Answer 4

Used to measure overall volatility of a portfolio of bonds

Question 5

Debentures

Answer 5

Debt obligation backed only by word and general creditworthiness

Question 6

Guaranteed Bonds

Answer 6

Backed by a company other than the issuing corporation

Question 7

Income Bonds

Answer 7

Issued when a company is coming out of bankruptcy

Question 8

Order of Liquidation

Answer 8

Secured, unsecured, subordinated debt

Question 9

Jumbo Certificate of Deposit

Answer 9

CDs with fixed interest rates and face values generally around $1 million

Question 10

What BAs Are Normally Used For

Answer 10

Finance international trade (pay for goods and services in another country)

Question 11

Commercial Paper

Answer 11

Max of 270 day maturities and used to finance accounts receivable and seasonal inventory gluts

Question 12

Repurchase Agreements

Answer 12

Agreement for buyer and seller to conduct a transaction and then reverse that transaction at a later date in the future

Question 13

Collateralized Mortgage Obligations

Answer 13

Pool a large number of mortgages that are structured into maturity classes called tranches

Question 14

Collateralized Debt Obligations

Answer 14

Portfolios thatpool non-mortgage loans together

Question 15

Adjustment Bond

Answer 15

New security issued for the outstanding debt of a corporation facing bankruptcy that needs to recapitalize its debt structure

Question 16

Promissory Notes

Answer 16

Form of commercial paper issued by corporations

Question 17

Nominal Yield

Answer 17

Yield stated at time of issuance

Question 18

When Treasury Bills Pay Interest

Answer 18

At maturity

Question 19

Government National Mortgage Association (GNMA)

Answer 19

Government-owned corporation that supports Department of Housing and Urban Development; subject to all three levels of tax

Question 20

How T-Bills Are Delivered

Answer 20

Book Entry

Question 21

Treasury Receipts

Answer 21

Securities collateralized by principal or interest payments of T-Bills and Notes put into a trust

Question 22

When Corporate and Municipal Securities Settle

Answer 22

T + 2

Question 23

When Government Securities Settle

Answer 23

T + 1

Question 24

Collateral Trust Bonds

Answer 24

Secured bond backed by marketable securities from issuer

Question 25

Difference of T-Bills From Other Treasury Securities

Answer 25

No stated interest rate

Question 26

What CMO Is Made Up Of

Answer 26

Different mortgage backed securities (including FNMA and FHLMC)

Question 27

Business Risk

Answer 27

Related to growth prospects of a business, mostly associated with common stock

Question 28

Mortgage Bond

Answer 28

Secured bond backed by real estate