Questions and Answers of Fixed Income Analysis

Relative to an otherwise similar option-free bond, a:A. Putable bond will trade at a higher price.B. Callable bond will trade at a higher price.C. Convertible bond will trade at a lower price.
Which type of bond most likely earns interest on an implied basis?A. FloaterB. Conventional bondC. Pure discount bond
A five-year bond has the following cash flows:The bond can best be described as a:A. Bullet bond.B. Fully amortized bond.C. Partially amortized bond. £1,000 £230.97 £230.97 £230.97 £230.97
Contrary to positive bond covenants, negative covenants are most likely:A. Costlier.B. Legally enforceable.C. Enacted at time of issue.
Investors seeking some general protection against a poor economy are most likely to select a:A. Deferred coupon bond.B. Credit-linked coupon bond.C. Payment-in-kind coupon bond.
The benefit to the issuer of a deferred coupon bond is most likely related to:A. Tax management.B. Cash flow management.C. Original issue discount price.
Which of the following bond types provides the most benefit to a bondholder when bond prices are declining?A. CallableB. Plain vanillaC. Multiple put
Which type of call bond option offers the greatest flexibility as to when the issuer can exercise the option?A. Bermuda callB. European callC. American call
Which of the following best describes a convertible bond’s conversion premium?A. Bond price minus conversion valueB. Par value divided by conversion priceC. Current share price multiplied by
Which of the following is most likely an issuer of bonds?A. Hedge fundB. Pension fundC. Local government
Open market operations describe the process used by central banks to buy and sell bonds to:A. Implement fiscal policy.B. Control the monetary base.C. Issue and repay government debt.
Which of the following best describes a primary market for bonds? A market:A. In which bonds are issued for the first time to raise capital.B. That has a specific location where the trading of bonds
Sovereign debt with a maturity at issuance shorter than one year most likely consists of:A. Floating-rate instruments.B. Zero-coupon instruments.C. Coupon-bearing instruments.
Relative to sovereign bonds, non-sovereign bonds with similar characteristics most likely trade at a yield that is:A. Lower.B. The same.C. Higher.
A loan made by a group of banks to a private company is most likely:A. A bilateral loan.B. A syndicated loan.C. A securitized loan.
If an investor holds a credit-linked note and the credit event does not occur, the investor receives:A. All promised cash flows as scheduled.B. All coupon payments as scheduled but not the par value
Which of the following are not considered wholesale funds?A. Interbank fundsB. Central bank fundsC. Repurchase agreements
The distinction between investment-grade debt and non-investment-grade debt is best described by differences in:A. Tax status.B. Credit quality.C. Maturity dates.
A bond issued by a city would most likely be classified as a:A. Supranational bond.B. Quasi-government bond.C. Non-sovereign government bond.
Retail investors most often:A. Do not invest in fixed-income securities.B. Invest directly in fixed-income securities.C. Invest indirectly in fixed-income securities through mutual funds or
US Treasury bonds are typically sold to the public via a(n):A. Auction.B. Primary dealer.C. Secondary bond market.
Floating-rate bonds are issued by national governments as the best way to reduce:A. Credit risk.B. Inflation risk.C. Interest rate risk.
Bonds issued by a governmental agency are most likely:A. Repaid from the cash flows generated by the agency.B. Guaranteed by the national government that sponsored the agency.C. Backed by the taxing
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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.
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.
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
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.
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
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
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
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.
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.
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
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
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.
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
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.
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
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
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.

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