Learning Module 1 Fixed-Income Instrument Features

Which feature of a fixed-rate corporate bond determines the periodic coupon cash flow amount paid to investors?

A bond has par value EUR100,000 and an annual coupon rate of 4% paid semiannually. What is each semiannual coupon payment?

Which of the following best describes a zero-coupon bond?

A floating-rate note (FRN) pays a coupon equal to the 3-month MRR plus a fixed spread of 150 basis points. If the 3-month MRR is 0.40% at a quarter, what is the annual coupon rate for that quarter and the quarterly interest payment on EUR5,000,000 par?

Which of the following describes the primary advantage to an issuer of including a call provision on a bond?

An investor buys a 5-year fixed-rate bond with annual coupon 3.2% and par USD100 at price USD101. Immediately after purchase, the bond's semiannual yield r (per half-year) solves the equation 101 = 1.6/(1+r)^1 + ... + 101.6/(1+r)^10. If r = 1.49% semiannually, what is the annualized YTM?

Which of the following best states the effect of a bond's price falling while coupon and par are unchanged on the current yield?

Which of these statements correctly contrasts secured and unsecured corporate bonds as to their primary source of repayment?

A bond indenture includes a limitation on liens covenant. What does this covenant most directly protect bondholders against?

Which covenant type would typically require the issuer to provide timely financial reports to bondholders?

An investor is comparing two bonds from the same issuer: one callable in 3 years at 103.25% and one non-callable. All else equal, which statement is correct about yields and prices at issuance?

Which of the following correctly describes how a convertible bond's conversion ratio is computed when the conversion price is EUR42 and the bond's par unit is EUR1,000?

An investor holds a 5-year, fixed-rate bullet bond. Compared to holding a fully amortizing bond of identical par, coupon rate, and maturity, which statement is correct about credit risk and reinvestment risk?

Which of the following is characteristic of a repo transaction from the security buyer's (cash lender's) viewpoint?

In a repo with a security price of USD100,000 and an agreed initial margin of 102%, what is the cash loan (purchase) amount advanced by the cash lender to the security seller?

Which of the following best describes a sinking fund arrangement for bonds?

Which investor is most likely to prefer investment-grade long-term bonds rather than high-yield bonds?

Which of the following is a proper definition of yield-to-maturity (YTM) for a bond?

A corporate bond's yield-to-maturity is 3.2% while a comparable sovereign bond's YTM is 2.3%. What does the 90 basis point difference most directly represent?

Which of the following statements about bond indexes is true relative to equity indexes?

Which issuance method is most likely used by a sovereign government to sell new Treasury bills?

An issuer includes an 'incurrence test' in its bond indenture which requires maintaining net interest bearing debt to EBITDA below 4.5 times to issue additional unsecured debt. This type of covenant is best described as:

A sovereign government issues inflation-indexed bonds that adjust principal with the CPI. If CPI rises 0.85% over the next period and the bond has principal EUR200,000, what is the inflation-adjusted principal used to compute the next coupon?

Which of the following is true about Eurobonds as described in the chapter?

Which of these tax treatments applies to an investor in a jurisdiction with original issue discount (OID) rules who buys a zero-coupon bond issued at a discount?

Which of these best describes a putable bond for the investor?

A corporate bond was issued at par. Over the next year, interest rates in the market rise sharply causing the bond price to decline to below par. Which of the YTM assumptions would fail for an investor who sells the bond before maturity and thus causes their realized return to differ from the YTM at purchase?

Which of the following is the most accurate description of a global bond?

If a bond's indenture contains a cross-default clause, what is the primary consequence for the issuer if it defaults on one debt obligation?

Which of these best explains why bond indexes typically weight constituents by market value of debt outstanding rather than equally weight them?

Which of these describes a 'make-whole' call provision on a bond?

Which of the following is the most likely reason a highly rated sovereign agency issues debt at a yield close to its sovereign guarantor but slightly above it?

If an investor needs to compare performance of a short-term, investment-grade fund, which benchmark index feature is most important to match?

An issuer with BBB- rating is considered which category and what implication does that have for investor restrictions in many institutional mandates?

Which of the following best explains 'pari passu' treatment in an indenture?

Which of the following choices correctly characterizes the difference between sovereign debt issued in domestic currency and external sovereign debt?

Which of the following best captures what a 'waterfall' structure in ABS does?

An issuer plans a private placement of debt rather than a public underwritten offering. Which of the following is a likely characteristic of that private placement?

Which of the following best explains why bond yields generally increase with maturity in an upward-sloping yield curve?

A leveraged loan often contains a floating-rate coupon with spread that increases if leverage rises. Which feature described in the chapter does this represent?

Which of the following describes the typical taxing treatment for interest income from a sovereign bond in the United States?

Which of the following statements regarding commercial paper (CP) is correct?

If a firm's bond indenture prohibits sale-and-leaseback transactions longer than X years, this is an example of which type of covenant?

Which of the following correctly distinguishes domestic, foreign, and Eurobond classifications?

Which of the following best explains why high-yield issuers often include restrictive covenants and security interests in debt agreements?

Which of these is an example of an affirmative covenant often found in indentures?

Which statement is correct about repo haircut and initial margin?

Which of the following is NOT a common use of the repo market listed in the chapter?

Which of these statements about primary and secondary fixed-income markets is accurate?

An investor compares two corporate bonds: Bond A is unsecured senior debt; Bond B is secured and ranks pari passu with other secured debt. In the event of issuer liquidation, which statement is accurate?