SS 15. Fixed Income Basic Concepts Flashcards
Calculation of a bond price using spot rates to discount the bond cash flows is best described as:
Arbitration free valuation
Name the coupon structure:
‘The coupon rate increases by a certain amount if
the credit rating of the issuer falls, and decreases if the credit rating of the issuer improves.’
Credit-linked coupon bond
If the issuer of a bond is in default, the bond will be trading:
flat
Current Yield =
Annual cash coupon payment
/
Current bond price
Given an increase in interest rate volatility, what will be the most likely effect on the price of a putable bond?
Increase
Notes have a maturity of:
Between 1 and 10 years
Bills have a maturity of:
Under 1 year
Name the coupon structure:
‘Regular coupon payments do not begin
until a period of time after issuance.’
Deferred coupon (split coupon) bonds
Name the coupon structure:
‘The issuer may make coupon payments by increasing
the principal amount, essentially paying bond interest with more bonds.’
Payment-in-kind bond
Sovereign bonds whose coupon payments and/or principal payments are adjusted by a consumer price index (CPI) are known as:
Inflation-linked bonds or
Linkers
On-the-run issue =
The most recently auctioned issue of that maturity
When computing the yield to maturity, it is assumed that the interest payments are reinvested at what rate?
yield to maturity at the time of the investment
‘An insurance company agrees to make a
payment if a third party fails to perform under the terms of a contract’ defines a:
Surety bond
Assuming all other factors remain unchanged, during the lockout period on a credit card asset-backed security:
The investor receives coupon interest but no principal.
A ______ ____ _______ provides for the periodic retirement of a portion of the
bonds issued over the life of the issue. In general, bonds with a sinking fund
provision have less credit risk but greater reinvestment risk.
sinking fund provision
A South African company issues bonds denominated in pound sterling that are sold to investors in the United Kingdom. These bonds are:
Foreign bonds
Bonds sold in a country and denominated in that country’s currency by an entity from another country are referred to as foreign bonds.
Pure-discount bonds and other bonds sold at significant discounts to par when
issued are termed:
original issue discount (OID) bonds
A repurchase agreement is most comparable to a:
collateralized loan
The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the bondholders is called the:
indenture
A ______ bond pays for losses resulting from employee theft or misconduct.
fidelity
‘A debt obligation backed by a segregated pool of assets’ is called a:
Cover bond
Name the coupon structure:
‘The coupon rate increases over time according to a
predetermined schedule. These bonds are typically callable’
Step-up coupon bond
Bonds that are denominated in a currency other than that of the country in which they are issued are called:
Eurobonds
Describe a convertible bond’s conversion premium:
Bond price minus conversion value
‘A method estimating bond YTMs using the YTMs of traded bonds that have credit quality very close to that of the non-traded or infrequently traded
bonds of similar maturity and coupon’ describes:
Matrix pricing
The Public Securities Administration (PSA) prepayment benchmark is expressed as:
A monthly series of conditional prepayment rates (CPRs)
If interest rates are expected to increase, the coupon payment structure that will benefit the issuer is a:
Capped Floating Rate Note (Capped FRN)
A capital market security has a maturity of:
longer than one year
The full price is otherwise known as:
The dirty price
The invoice price
Bonds with a bid ask spread of _____ are considered liquid
10 to 12 bps
Bonds have a maturity of:
Between 10 and 30 years
Settlement period for a government bond:
T + 1
Which type of bond earns interest on an implied basis?
Pure discount bond
Spreads between bonds with different maturities describe:
Intra-market spreads
________ are often issued as bearer bonds (rather than registered bonds)
Eurobonds
Wholesale funds available for banks include (3):
central bank funds
interbank funds
negotiable certificates of deposit
The collateral for credit card receivable-backed securities is:
A pool of non-amortizing loans
‘The risk that when interest rates rise, mortgage holders will make fewer prepayments, thereby increasing the maturity of the bond’ describes:
Extension risk
For a callable bond, a yield-to-call can be calculated for each possible call date and price. The lowest of yield-to-maturity and the various yields-to-call is termed the:
Yield-to-worst
Relative to negative bond covenants, positive covenants are:
cheaper for the issuer
Bond dealers usually quote the:
flat price
The collateral for an auto loan ABS is:
A pool of amortizing loans
When an investor’s investment horizon is less than the Macaulay duration of the bond owned, the duration gap is:
Positive
Accrued interest formula:
(Days since last coupon / days between the coupon) * coupon payment
‘A monthly measure of prepayment for the mortgage pool’ describes the:
Single Monthly Mortality rate (SMM)
Corporate bonds vs. Treasury bonds spreads describe:
inter-market spreads
The flat price is otherwise known as:
The clean price
The quoted price
A U.S. dollar-denominated bond sold to investors outside the United States is called a:
Eurodollar bond
