W3

Question 1

What category of client is more likely to want GIC monthly payments (instead of annually)?

Answer 1

Seniors.

Question 2

GIC payment frequencies include:

Answer 2

Monthly, annually, at maturity.

Question 3

How often does bonds pay interest? (in Canada and the U.S.)

Answer 3

Semiannually.

Question 4

T Bills have a maturity:

Answer 4

Less than 1 year.

Question 5

Notes have a maturity:

Answer 5

Less than 10 years.

Question 6

If the maturity is more than 10 years are called:

Answer 6

Bonds.

Question 7

Real return bonds are:

Answer 7

Bonds that pays a real interest rate, they are SO illiquid (gap between bid and ask is not good, very small appetite for this in the market).

Question 8

Price of a bond is:

Answer 8

Its market value, not it face (or par) value.

Question 9

If someone buys a $100,000 bond at 6.00% on Oct 1. When is its first payment and how much is it?

Answer 9

April 1, is $3,000 (6.00%/2 * $100,000).

Question 10

When interest rates in the market go up, bond prices:

Answer 10

Go down.

Question 11

At what price is a bond issued?

Answer 11

At par (trading at its face value).

Question 12

Short term bonds are generally:

Answer 12

Maturing in less than 3-5 years.

Question 13

Can you buy bonds directly from the government?

Answer 13

No, there is an auction but is not open for regular people.

Question 14

Why do they call it “coupon” rate?

Answer 14

They were used to have a paper with coupons you could redeem your interest payments.

Question 15

Can you ask for your paper bond to be issued nowadays?

Answer 15

Yes, if requested (a fee is applied).

Question 16

The formula to calculate the current yield is:

Answer 16

(annual interest payment / current market price) * 100

Question 17

Do people use the current yield to trade bonds?

Answer 17

No, bonds trade at YIELD TO MATURITY (YTM).

Question 18

Accrued interest is:

Answer 18

The interest that hasn’t been collected but I (as a seller) deserve because I’ve hold the bond for that time.

Question 19

What is the logic behind strip bonds?

Answer 19

Is buying one of the coupons you “strip” from the initial bond, it is bought at a discount price. (YOU HAVE TO PAY TAXES EACH YEAR EVEN THOUGH YOU’RE NOT RECEIVING ANY PAYMENT STILL).

Question 20

Callable/redeemable bonds are risky because:

Answer 20

The issuer would exercise those bonds when is in their own best interests (when they can find cheaper financing in the market and pay me back).

Question 21

Extendible bonds gives the investor an advantage, meaning they:

Answer 21

Have a lower rate of return.

Question 22

Retractable bonds

Answer 22

,

Question 23

In convertible bonds investors have the POSSIBILITY to:

Answer 23

Convert them (a portion or all) to common shares.

Question 24

Sinking and purchase funds are supposed to:

Answer 24

(Basically) buy back from investors.

Question 25

High-yield bonds are also known as:

Answer 25

Junk bonds.

Question 26

Factors of diversification of Fixed-Income investments include:

Answer 26

Geography, industry, company size, issuer (credit worthiness and liquidity), term to maturity.

Question 27

What happens when a company misses a bond payment?

Answer 27

They get sued, the bond price sinks.

Question 28

Can you just sell you shares in a private corporation?

Answer 28

Depends on the shareholder agreement.

Question 29

How often are dividend paid (Canada and US) usually?

Answer 29

Quarterly.

Question 30

The only way to get fractional shares with a DRIP is:

Answer 30

Whit an employer plan.

Question 31

Do all preferred shares pay dividends?

Answer 31

Yes, in two ways:

Question 32

How is the dividend yield calculated for equities?

Answer 32

(Dividend declared (%)* par value)/market value

Question 33

The two major forms of security analysis are:

Answer 33

Fundamental and technical.

Question 34

Two approaches for fundamental analysis are:

Answer 34

Bottom-up (Warren buffet, Sir John Templeton) and Top-Down.