Fixed Income Securities Test 1
(Answered) Complete Solution
Fixed income securities can also be referred to as?
debt securities and bonds
a fixed income security is a __________ obligation
debt
What is the largest subset of financial markets?
global fixed income markets
global fixed income markets is the largest by what criteria?
- number of shares
- market capitalization
In 2010 global fixed income markets were ____ times larger than global equity
markets?
3
In fixed income markets, what are the goals of issuers and investors?
-debt issuers have financing needs that must be met
-debt investors have return goals
Sectors of the US Bond Market
- Treasury Sector
- Agency Sector
- Municipal Sector
- Corporate Sector
- Asset-backed sector
- Mortgage Sector
Treasury Sector
securities issued by the US government
Agency Sector
securities issued by federally related institutions and government-sponsored enterprises
Municipal Sector
Securities issued by state and local government bonds
Corporate Sector
securities issued in the US by US corporations and foreign corporations
Asset-backed sector
securities backed by a pool of assets
Mortgage sector
securities backed by mortgage loans
What are the types of bond investors?
- retail investors
-institutional investors
Bond Investors
Retail Investors
,an example is mutual funds of bonds. It is a pooled investment vehicle. The advantages
are:
- better diversification
- better liquidity
- professional management
Institutional Investors for bonds
What are some examples?
- Institutional portfolios
- funds
What are the important features of a bond?
- type of issuer
- term to maturity
- principal and coupon rate
- amortization feature
- embedded options
- bond issuer description
What are the types of issuers for bonds?
- the federal government and its agencies
- municipal governments
- corporations (both domestic and foreign)
define term to maturity?
number of years by which the issuer has agreed to abide by the terms of the debt
obligation
There may be terms that allow a bond issuer or bondholder to alter a?
alter a bond's term to maturity
Principal Value
amount the issuer agrees to repay the bondholder at the maturity date
Coupon rate
- this is the nominal rate of interest for the bond
- this is the interest rate the issuer agrees to pay each year
the coupon rate is expressed as?
a percentage of the instruments par value
the annual monetary amount of interest is called the instrument's?
coupon payment
zero-coupon bond
interest is paid at the maturity with the exact amount being the difference between the
principal and the price paid for the bond
Floating Rate Bonds
the coupon rate for these bonds resets periodically based on the coupon reset formula
coupon reset formula
floating coupon rate = reference rate + quoted margin
Floating Rate Bonds
Different Types of Reference Rate
, - LIBOR
- Linkers
- Inverse-floating rate bonds
LIBOR
London Interbank Offered Rate - Rate at which the highest credit banks borrow from
each other in the London interbank market.
Linkers
bonds whose interest rate is tied to the rate of inflation
Inverse Floating Rate Bonds
coupon interest rate bonds moves in the opposite direction from the change in interest
rates
Amortization Feature
Bullet bonds
entire principal repayment is made at maturity
Amortization Feature
amortizing bonds
principal is repaid over the life of the bond
amortization schedule
there is a schedule of principal repayments
weighted average life if computed most commonly for
mortgage backed and asset backed securities
Types of Embedded Options
- call provision
- put provision
- convertible bond
- exchangeable bond
call provision
issuer has the right to retire the debt prior to maturity
(this can be done fully or partially)
put provision
bondholder has the right to sell the issue back to the issuer at par value on designated
dates
convertible bonds
bondholder has the right to exchange the bond for shares of common stock
exchangeable bond
bondholder can exchange the issue for a specified number of common stock shares of
a corporation from the issuer of the bond
Describing a bond issue
Most securities are identified by a ________ number
CUISP
first 6 characters of CUSIP number identify the?
issuer
(Answered) Complete Solution
Fixed income securities can also be referred to as?
debt securities and bonds
a fixed income security is a __________ obligation
debt
What is the largest subset of financial markets?
global fixed income markets
global fixed income markets is the largest by what criteria?
- number of shares
- market capitalization
In 2010 global fixed income markets were ____ times larger than global equity
markets?
3
In fixed income markets, what are the goals of issuers and investors?
-debt issuers have financing needs that must be met
-debt investors have return goals
Sectors of the US Bond Market
- Treasury Sector
- Agency Sector
- Municipal Sector
- Corporate Sector
- Asset-backed sector
- Mortgage Sector
Treasury Sector
securities issued by the US government
Agency Sector
securities issued by federally related institutions and government-sponsored enterprises
Municipal Sector
Securities issued by state and local government bonds
Corporate Sector
securities issued in the US by US corporations and foreign corporations
Asset-backed sector
securities backed by a pool of assets
Mortgage sector
securities backed by mortgage loans
What are the types of bond investors?
- retail investors
-institutional investors
Bond Investors
Retail Investors
,an example is mutual funds of bonds. It is a pooled investment vehicle. The advantages
are:
- better diversification
- better liquidity
- professional management
Institutional Investors for bonds
What are some examples?
- Institutional portfolios
- funds
What are the important features of a bond?
- type of issuer
- term to maturity
- principal and coupon rate
- amortization feature
- embedded options
- bond issuer description
What are the types of issuers for bonds?
- the federal government and its agencies
- municipal governments
- corporations (both domestic and foreign)
define term to maturity?
number of years by which the issuer has agreed to abide by the terms of the debt
obligation
There may be terms that allow a bond issuer or bondholder to alter a?
alter a bond's term to maturity
Principal Value
amount the issuer agrees to repay the bondholder at the maturity date
Coupon rate
- this is the nominal rate of interest for the bond
- this is the interest rate the issuer agrees to pay each year
the coupon rate is expressed as?
a percentage of the instruments par value
the annual monetary amount of interest is called the instrument's?
coupon payment
zero-coupon bond
interest is paid at the maturity with the exact amount being the difference between the
principal and the price paid for the bond
Floating Rate Bonds
the coupon rate for these bonds resets periodically based on the coupon reset formula
coupon reset formula
floating coupon rate = reference rate + quoted margin
Floating Rate Bonds
Different Types of Reference Rate
, - LIBOR
- Linkers
- Inverse-floating rate bonds
LIBOR
London Interbank Offered Rate - Rate at which the highest credit banks borrow from
each other in the London interbank market.
Linkers
bonds whose interest rate is tied to the rate of inflation
Inverse Floating Rate Bonds
coupon interest rate bonds moves in the opposite direction from the change in interest
rates
Amortization Feature
Bullet bonds
entire principal repayment is made at maturity
Amortization Feature
amortizing bonds
principal is repaid over the life of the bond
amortization schedule
there is a schedule of principal repayments
weighted average life if computed most commonly for
mortgage backed and asset backed securities
Types of Embedded Options
- call provision
- put provision
- convertible bond
- exchangeable bond
call provision
issuer has the right to retire the debt prior to maturity
(this can be done fully or partially)
put provision
bondholder has the right to sell the issue back to the issuer at par value on designated
dates
convertible bonds
bondholder has the right to exchange the bond for shares of common stock
exchangeable bond
bondholder can exchange the issue for a specified number of common stock shares of
a corporation from the issuer of the bond
Describing a bond issue
Most securities are identified by a ________ number
CUISP
first 6 characters of CUSIP number identify the?
issuer
