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fixed income analysis
Fixed Income Analysis 5th Edition Barbara S. Petitt - Solutions
Which of the following statements relating to commercial paper is most accurate? Companies issue commercial paper:A. Only for funding working capital.B. Only as an interim source of financing.C. Both for funding working capital and as an interim source of funding.
A structured financial instrument whose coupon rate is determined by the formula 5% – (0.5 × Libor) is most likely:A. A leveraged inverse floater.B. A participation instrument.C. A deleveraged inverse floater.
A large-denomination negotiable certificate of deposit most likely:A. Is traded in the open market.B. Is purchased by retail investors.C. Has a penalty for early withdrawal of funds
A bond issued internationally, outside the jurisdiction of the country in whose currency the bond is denominated, is best described as a:A. Eurobond.B. Foreign bond.C. Municipal bond.
A fixed-income security issued with a maturity at issuance of nine months is most likely classified as a:A. Capital market security.B. Money market security.C. Securitized debt instrument.
In a single-price bond auction, an investor who places a competitive bid and specifies a rate that is above the rate determined at auction will most likely:A. Not receive any bonds.B. Receive the bonds at the rate determined at auction.C. Receive the bonds at the rate specified in the investor’s
Sovereign bonds whose coupon payments and/or principal repayments are adjusted by a consumer price index are most likely known as:A. Linkers.B. Floaters.C. Consols.
Maturities of Eurocommercial paper range from:A. Overnight to three months.B. Overnight to one year.C. Three months to one year.
From the dealer’s viewpoint, a repurchase agreement is best described as a type of:A. Collateralized short-term lending.B. Collateralized short-term borrowing.C. Uncollateralized short-term borrowing.
When classified by type of issuer, asset-backed securities are part of the:A. Corporate sector.B. Structured finance sector.C. Government and government-related sector.
The price of a bond issued in the United States by a British company and denominated in US dollars is most likely to:A. Change as US interest rates change.B. Change as British interest rates change.C. Be unaffected by changes in US and British interest rates.
A bond purchased in a secondary market is most likely purchased from:A. The bond’s issuer.B. The bond’s lead underwriter.C. Another investor in the bond.
A bond issue that has a stated number of bonds that mature and are paid off each year before final maturity most likely has a:A. Term maturity.B. Serial maturity.C. Sinking fund arrangement.
The interest on a repurchase agreement is known as the:A. Repo rate.B. Repo yield.C. Repo margin.
Compared with developed market bonds, emerging market bonds most likely:A. Offer lower yields.B. Exhibit higher risk.C. Benefit from lower growth prospects.
Interbank offered rates are best described as the rates at which a panel of banks can:A. Issue short-term debt.B. Borrow unsecured funds from other major banks.C. Borrow from other major banks against some form of collateral.
Corporate bonds will most likely settle:A. On the trade date.B. On the trade date plus one day.C. By the trade date plus three days.
The level of repo margin is higher:A. The higher the quality of the collateral.B. The higher the credit quality of the counterparty.C. The longer the length of the repurchase agreement.
With respect to floating-rate bonds, a reference rate (such as MRR) is most likely used to determine the bond’s:A. Spread.B. Coupon rate.C. Frequency of coupon payments.
A company issues floating-rate bonds. The coupon rate is expressed as the threemonth Libor plus a spread. The coupon payments are most likely to increase as:A. Libor increases.B. The spread increases.C. The company’s credit quality decreases.
The variability of the coupon rate on a Libor-based floating-rate bond is most likely caused by:A. Periodic resets of the reference rate.B. Market-based reassessments of the issuer’s creditworthiness.C. Changing estimates by the Libor administrator of borrowing capacity.
Which of the following statements is most accurate? An interbank offered rate:A. Is a single reference rate.B. Applies to borrowing periods of up to 10 years.C. Is used as a reference rate for interest rate swaps.
An investment bank that underwrites a bond issue most likely:A. Buys and resells the newly issued bonds to investors or dealers.B. Acts as a broker and receives a commission for selling the bonds to investors.C. Incurs less risk associated with selling the bonds than in a best-efforts offering.
In major developed bond markets, newly issued sovereign bonds are most often sold to the public via a(n):A. Auction.B. Private placement.C. Best-efforts offering.
Which of the following describes privately placed bonds?A. They are non-underwritten and unregistered.B. They usually have active secondary markets.C. They are less customized than publicly offered bonds.
A mechanism by which an issuer may be able to offer additional bonds to the general public without preparing a new and separate offering circular best describes:A. The grey market.B. A shelf registration.C. A private placement.
Which of the following statements related to secondary bond markets is most accurate?A. Newly issued corporate bonds are issued in secondary bond markets.B. Secondary bond markets are where bonds are traded between investors.C. The major participants in secondary bond markets globally are retail
A bond market in which a communications network matches buy and sell orders initiated from various locations is best described as an:A. Organized exchange.B. Open market operation.C. Over-the-counter market.
A liquid secondary bond market allows an investor to sell a bond at:A. The desired price.B. A price at least equal to the purchase price.C. A price close to the bond’s fair market value.
Corporate bond secondary market trading most often occurs:A. On a book-entry basis.B. On organized exchanges.C. Prior to settlement at T + 1.
Sovereign bonds are best described as:A. Bonds issued by local governments.B. Secured obligations of a national government.C. Bonds backed by the taxing authority of a national government.
Which factor is associated with a more favorable quality sovereign bond credit rating?A. Issued in local currency, onlyB. Strong domestic savings base, onlyC. Issued in local currency of country with strong domestic savings base
Which type of sovereign bond has the lowest interest rate risk for an investor?A. FloatersB. Coupon bondsC. Discount bonds
Agency bonds are issued by:A. Local governments.B. National governments.C. Quasi-government entities.
The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is best described as a:A. Sovereign bond.B. Supranational bond.C. Quasi-government bond.
A bond issued by a local government authority, typically without an explicit funding commitment from the national government, is most likely classified as a: A. Sovereign bond.B. Quasi-government bondC. Non-sovereign government bond.
Which of the following statements relating to commercial paper is most accurate?A. There is no secondary market for trading commercial paper.B. Only the strongest, highly rated companies issue commercial paper.C. Commercial paper is a source of interim financing for long-term projects.
Eurocommercial paper is most likely:A. Negotiable.B. Denominated in euros.C. Issued on a discount basis.
For the issuer, a sinking fund arrangement is most similar to a:A. Term maturity structure.B. Serial maturity structure.C. Bondholder put provision.
When issuing debt, a company may use a sinking fund arrangement as a means of reducing:A. Credit risk.B. Inflation risk.C. Interest rate risk.
Which of the following is a source of wholesale funds for banks?A. Demand depositsB. Money market accountsC. Negotiable certificates of deposit
A characteristic of negotiable certificates of deposit is:A. They are mostly available in small denominations.B. They can be sold in the open market prior to maturity.C. A penalty is imposed if the depositor withdraws funds prior to maturity.
A repurchase agreement is most comparable to a(n):A. Interbank deposit.B. Collateralized loan.C. Negotiable certificate of deposit.
The repo margin is:A. Negotiated between counterparties.B. Established independently of market-related conditions.C. Structured on an agreement assuming equal credit risks to all counterparties.
Identify whether each of the following bonds is trading at a discount, at par value, or at a premium. Calculate the prices of the bonds per 100 in par value using Equation 1. If the coupon rate is deficient or excessive compared with the market discount rate, calculate the amount of the deficiency
The repo margin on a repurchase agreement is most likely to be lower when:A. The underlying collateral is in short supply.B. The maturity of the repurchase agreement is long.C. The credit risk associated with the underlying collateral is high.
Calculate the yields-to-maturity for the following bonds. The prices are stated per 100 of par value. Bond A B C Coupon Payment per Period 3.5 2.25 0 Number of Periods to Maturity 4 6 60 Price 103.75 96.50 22.375
An investor is considering the following six annual coupon payment government bonds:Based on the relationships between bond prices and bond characteristics, which bond will go up in price the most on a percentage basis if all yields go down from 5.00% to 4.90%?
Calculate the price (per 100 of par value) and the yield-to-maturity for a four-year, 3% annual coupon payment bond given the following two sequences of spot rates. Time-to-Maturity 1 year 2 years 3 years 4 years Spot Rates A 0.39% 1.40% 2.50% 3.60% Spot Rates B 4.08% 4.01% 3.70% 3.50%
A 6% German corporate bond is priced for settlement on 18 June 2019. The bond makes semiannual coupon payments on 19 March and 19 September of each year and matures on 19 September 2030. The corporate bond uses the 30/360 day-count convention for accrued interest. Calculate the full price, the
An analyst needs to assign a value to an illiquid four-year, 4.5% annual coupon payment corporate bond. The analyst identifies two corporate bonds that have similar credit quality: One is a three-year, 5.50% annual coupon payment bond priced at 107.500 per 100 of par value, and the other is a
An analyst observes these reported statistics for two bonds.Confirm the calculation of the two yield measures for the two bonds. Annual coupon rate Coupon payment frequency Years to maturity Price (per 100 of par value) Current yield Yield-to-maturity Bond A 8.00% Semiannually 5
A five-year, 4.50% semiannual coupon payment government bond is priced at 98 per 100 of par value. Calculate the annual yield-to-maturity stated on a semiannual bond basis, rounded to the nearest basis point. Convert that annual yield toA. An annual rate that can be used for direct comparison with
A four-year French floating-rate note pays three-month Euribor (Euro Interbank Offered Rate, an index produced by the European Banking Federation) plus 1.25%. The floater is priced at 98 per 100 of par value. Calculate the discount margin for the floater assuming that three-month Euribor is
A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a coupon rate of 10% with interest paid semi-annually, and is currently priced at 102% of par. The bond’s:A. Tenor is six years.B. Nominal rate is 5%.C. Redemption value is 102% of the par value.
The risk of loss resulting from the issuer failing to make full and timely payment of interest is called:A. Credit risk.B. Systemic risk.C. Interest rate risk.
The individual or entity that most likely assumes the role of trustee for a bond issue is:A. A financial institution appointed by the issuer.B. The treasurer or chief financial officer of the issuer.C. A financial institution appointed by a regulatory authority.
Suppose that a money market investor observes quoted rates on the following four 180- day money market instruments:Calculate the bond equivalent yield for each instrument. Which instrument offers the investor the highest rate of return if the credit risks are the same? Money
The following information is from the prospectus supplement for US$877,670,000 of auto loan ABS issued by XYZ Credit Automobile Receivables Trust 2019:The collateral for this securitization is a pool of subprime automobile loan contracts secured for new and used automobiles and light-duty trucks
A 6% annual coupon corporate bond with two years remaining to maturity is trading at a price of 100.125. The two-year, 4% annual payment government benchmark bond is trading at a price of 100.750. The one-year and two-year government spot rates are 2.10% and 3.635%, respectively, stated as
A bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value is closest to:A. 95.34.B. 98.00.C. 98.11.
An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to:A. 95.00.B. 95.11.C. 105.15.
Consider the following two bonds that pay interest annually:At a market discount rate of 4%, the price difference between Bond A and Bond B per 100 of par value is closest to:A. 3.70.B. 3.77.C. 4.00. Bond A B Coupon Rate 5% 3% Time-to-Maturity 2 years 2 years
A bond offers an annual coupon rate of 4%, with interest paid semiannually. The bond matures in two years. At a market discount rate of 6%, the price of this bond per 100 of par value is closest to:A. 93.07.B. 96.28.C. 96.33.
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, the price of this bond per 100 of par value is closest to:A. 106.60.B. 112.54.C. 143.90.
A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per year and assuming annual compounding, the price of the bond per 100 of par value is closest to:A. 51.30.B. 51.67.C. 71.62.
The following information relatesWhich bond offers the lowest yield-to-maturity?A. Bond AB. Bond BC. Bond C Bond A B C Price 101.886 100.000 97.327 Coupon Rate 5% 6% 5% Time-to-Maturity 2 years 2 years 3 years
The following information relatesWhich bond will most likely experience the smallest percent change in price if the market discount rates for all three bonds increase by 100 bps?A. Bond AB. Bond BC. Bond C Bond A B C Price 101.886 100.000 97.327 Coupon Rate 5% 6% 5% Time-to-Maturity 2 years 2
The following information relatesAll three bonds are currently trading at par value.Relative to Bond C, for a 200 bp decrease in the required rate of return, Bond B will most likely exhibit a(n):A. Equal percentage price change.B. Greater percentage price change.C. Smaller percentage price change.
The following information relatesAll three bonds are currently trading at par value.Which bond will most likely experience the greatest percentage change in price if the market discount rates for all three bonds increase by 100 bps?A. Bond AB. Bond BC. Bond C Bond A B C Coupon
Suppose a bond’s price is expected to increase by 5% if its market discount rate decreases by 100 bps. If the bond’s market discount rate increases by 100 bps, the bond price is most likely to change by:A. 5%.B. Less than 5%.C. More than 5%.
An investor considers the purchase of a two-year bond with a 5% coupon rate, with interest paid annually. Assuming the sequence of spot rates shown below, the price of the bond is closest to:A. 101.93.B. 102.85.C. 105.81. Time-to-Maturity 1 year 2 years Spot Rates 3% 4%
The following information relatesAll three bonds pay interest annually.Based on the given sequence of spot rates, the price of Bond X is closest to:A. 95.02.B. 95.28.C. 97.63. Bond Coupon Rate X 8% Y 7% 6% N Time-to-Maturity 3 years 3 years 3 years Time-to-Maturity 1 year 2 years 3 years Spot
A three-year bond offers a 10% coupon rate with interest paid annually. Assuming the following sequence of spot rates, the price of the bond is closest to:A. 96.98.B. 101.46.C. 102.95. Time-to-Maturity 1 year 2 years 3 years Spot Rates 8.0% 9.0% 9.5%
The following information relatesAll three bonds pay interest annually.Based on the given sequence of spot rates, the price of Bond Y is closest to:A. 87.50.B. 92.54.C. 92.76. Bond Coupon Rate X 8% Y 7% 6% N Time-to-Maturity 3 years 3 years 3 years Time-to-Maturity 1 year 2 years 3 years Spot
The following information relatesAll three bonds pay interest annually.Based on the given sequence of spot rates, the yield-to-maturity of Bond Z is closest to:A. 9.00%.B. 9.92%.C. 11.93%. Bond Coupon Rate X 8% Y 7% 6% N Time-to-Maturity 3 years 3 years 3 years Time-to-Maturity 1 year 2 years 3
The following information relates Bond G, described in the exhibit below, is sold for settlement on 16 June 2020.The full price that Bond G settles at on 16 June 2020 is closest to:A. 102.36.B. 103.10.C. 103.65. Annual Coupon Coupon Payment Frequency Interest Payment Dates Maturity Date Day-Count
Bond dealers most often quote the:A. Flat price.B. Full price.C. Full price plus accrued interest.
The following information relates Bond G, described in the exhibit below, is sold for settlement on 16 June 2020.The accrued interest per 100 of par value for Bond G on the settlement date of 16 June 2020 is closest to:A. 0.46.B. 0.73.C. 0.92. Annual Coupon Coupon Payment Frequency Interest Payment
The following information relates Bond G, described in the exhibit below, is sold for settlement on 16 June 2020.The flat price for Bond G on the settlement date of 16 June 2020 is closest to:A. 102.18.B. 103.10.C. 104.02. Annual Coupon Coupon Payment Frequency Interest Payment Dates Maturity
Matrix pricing allows investors to estimate market discount rates and prices for bonds:A. With different coupon rates.B. That are not actively traded.C. With different credit quality.
When underwriting new corporate bonds, matrix pricing is used to get an estimate of the:A. Required yield spread over the benchmark rate.B. Market discount rate of other comparable corporate bonds.C. Yield-to-maturity on a government bond having a similar time-to-maturity.
A bond with 20 years remaining until maturity is currently trading for 111 per 100 of par value. The bond offers a 5% coupon rate with interest paid semiannually. The bond’s annual yield-to-maturity is closest to:A. 2.09%.B. 4.18%.C. 4.50%.
The annual yield-to-maturity, stated for with a periodicity of 12, for a four-year, zerocoupon bond priced at 75 per 100 of par value is closest to:A. 6.25%.B. 7.21%.C. 7.46%.
A bond with five years remaining until maturity is currently trading for 101 per 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in three years and is callable after that date on coupon dates according to the following schedule:The
A five-year, 5% semiannual coupon payment corporate bond is priced at 104.967 per 100 of par value. The bond’s yield-to-maturity, quoted on a semiannual bond basis, is 3.897%. An analyst has been asked to convert to a monthly periodicity. Under this conversion, the yield-to-maturity is closest
A bond with five years remaining until maturity is currently trading for 101 per 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in three years and is callable after that date on coupon dates according to the following schedule:The
The following information relatesA bond with five years remaining until maturity is currently trading for 101 per 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in three years and is callable after that date on coupon dates according
A bond with five years remaining until maturity is currently trading for 101 per 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in three years and is callable after that date on coupon dates according to the following schedule:The
An analyst evaluates the following information relating to floating-rate notes (FRNs) issued at par value that have three-month MRR as a reference rate:Based only on the information provided, the FRN that will be priced at a premium on the next reset date is:A. FRN X.B. FRN Y.C. FRN Z.
A two-year floating-rate note pays six-month Libor plus 80 bps. The floater is priced at 97 per 100 of par value. The current six-month MRR is 1.00%. Assume a 30/360 day-count convention and evenly spaced periods. The discount margin for the floater in basis points is closest to:A. 180 bps.B. 236
A 365-day year bank certificate of deposit has an initial principal amount of USD96.5 million and a redemption amount due at maturity of USD100 million. The number of days between settlement and maturity is 350. The bond equivalent yield is closest to:A. 3.48%.B. 3.65%.C. 3.78%.
The bond equivalent yield of a 180-day banker’s acceptance quoted at a discount rate of 4.25% for a 360-day year is closest to:A. 4.31%.B. 4.34%.C. 4.40%.
Which of the following statements describing a par curve is incorrect?A. A par curve is obtained from a spot curve.B. All bonds on a par curve are assumed to have different credit risk.C. A par curve is a sequence of yields-to-maturity such that each bond is priced at par value.
The following information relatesAll rates are annual rates stated for a periodicity of one (effective annual rates).The value per 100 of par value of a two-year, 3.5% coupon bond with interest payments paid annually is closest to:A. 101.58.B. 105.01.C. 105.82. Time
The following information relatesAll rates are annual rates stated for a periodicity of one (effective annual rates).The three-year implied spot rate is closest to:A. 1.18%.B. 1.94%.C. 2.28%. Time Period "Oyly" "lyly" "2yly" "3yly" "4yly" Forward Rate 0.80% 1.12% 3.94% 3.28% 3.14%
A yield curve constructed from a sequence of yields-to-maturity on zero-coupon bonds is the:A. Par curve.B. Spot curve.C. Forward curve.
The rate interpreted to be the incremental return for extending the time-to-maturity of an investment for an additional time period is the:A. Add-on rate.B. Forward rate.C. Yield-to-maturity.
The following information relatesBoth bonds pay interest annually. The current three-year EUR interest rate swap benchmark is 2.12%.The G-spread in basis points on the UK corporate bond is closest to:A. 264 bps.B. 285 bps.C. 300 bps. Bond UK Government Benchmark Bond UK Corporate Bond Coupon
The spread component of a specific bond’s yield-to-maturity is least likely impacted by changes in:A. Its tax status.B. Its quality rating.C. Inflation in its currency of denomination.
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