Exam #2

Question 1

Also called bonds

Any debt instrument w/ future cash flows that are contractually defined and can be predetermined

Answer 1

Fixed income securities

Question 2

Basic features of a bond

Answer 2

Tenor
Issuer
Par Value
Coupon Rate and Frequency
Currency denomination

Question 3

YTM < coupon rate

Answer 3

Premium

Question 4

YTM>Coupon rate

Answer 4

Discount

Question 5

Make coupon payments in one currency and pay the face value at maturity in another currency

Answer 5

Dual-currency bonds

Question 6

Entitles the bond holders the preference in which they want to receive interest payments and principal repayments

Answer 6

Currency option bonds

Question 7

Celebrities can issue a bond

Question 8

Fixed rate bonds features

Answer 8

All-in yield

Question 9

Formula for credit spread

Answer 9

Credit spread = sum of risk premium + default risk-free

Question 10

Margin or benchmark over default risk-free rate to compensate investor on the firm-specific credit risk on underlying security

Answer 10

Credit spread

Question 11

Yield from govt securities (GS) bond used as reference for corp bond

Answer 11

Default risk-free rate

Question 12

Formula: default risk free rate

Answer 12

Real risk free + inflation rate

Question 13

Internet rate

Answer 13

Default risk free rate + credit spread

Question 14

ROP are dollar-dominated bonds

Question 15

FXTN

Answer 15

Fixed rate Treasury notes

Question 16

RTB

Answer 16

Retail Treasury bonds

Question 17

ROP

Answer 17

Republic of the Philippines bonds

Question 18

1. Foreign Securities Market
2. Currency Market
3. Equity Market
4. Real Estate Market
5. Capital Market
6. Money Market
7. Cash/Spot Market

Answer 18

1. Very high
2. High
3. Medium to High
4. Medium
5. Low to Medium
6. Low
7. Very Low

Question 19

Where funds are generated and traded

Answer 19

Financial markets

Question 20

Funds and securities are exchanged between

Answer 20

Issuers and investors

Question 21

Examples of fixed income security

Answer 21

Govt bonds
Index-linked bonds
High yield debt

Question 22

All-in bond yield

Answer 22

Credit spread + default risk free

Question 23

What type of fixed income instrument offers only a return to a default risk free rate

Answer 23

Government securities yields

Question 24

Considered default “risk free” interest rates due to a National Government ability to

Answer 24

1. Print money
2. Collect taxes to pay off its debt

Question 25

Difference between corporate security yield and GS yield is the

Answer 25

Credit spread

Question 26

Attributes of a benchmark

Answer 26

Credible Verifiable Transparent

Question 27

Primary risks /risk considerations

Answer 27

Credit Market Liquidity Operations

Question 28

Measure of income that is comparable to the dividend yield for a common share

Answer 28

Currency yield or running yield

Question 29

Formula for current yield

Answer 29

Annual cash coupon payment/bond price

Question 30

Provides an estimate of the bond's expected return or rate of return Reflects the per annum return

Answer 30

YTM/market discount rate

Question 31

Any given amount is worth more sooner than later

Question 32

Discount factor

Answer 32

= 1/(1+rt)

Question 33

interest rate

Answer 33

= fv/pv-1 x 1/t

Question 34

PV and FV depends on

Answer 34

Interest rate Tenor

Question 35

Bond prices and interest rates move in opposite directions

Question 36

The lower the seniority ranking of a bond, the higher its credit risks

Question 37

Backed by a collateral

Answer 37

Secure debt

Question 38

Represents a general claim to the issuers asset and cash flows

Answer 38

Unsecured debt

Question 39

All debt within the same category

Answer 39

Rank pari passu

Question 40

Independent bodies evaluating the financial strength of companies, assign ratings and assess risk of debt issue

Answer 40

Credit Rating agencies

Question 41

Debt with high rating, appropriate for good credit quality for investments containing certain level of credit risk

Answer 41

Investment grade debt

Question 42

Obligations with lower rating

Answer 42

Non-investment grade

Question 43

Top 3 credit rating agencies

Answer 43

1. Fitch 2. Moody's 3. Standard and POORS (S&P)

Question 44

Philippines is currently ranked lower medium grade

Question 45

Secured by specific types of equipment or physical asstes

Answer 45

Equipment trust certificate

Question 46

Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property

Answer 46

Mortgage backed securities

Question 47

Guarantee received from 3rd party often called a guarantor

Answer 47

External credit enhancement

Question 48

4 C's

Answer 48

Capacity Collateral Covenants Character

Question 49

Underwriting process

Answer 49

Issuer Lend Manager Syndicate Member Selling Agent

Question 50

Macroeconomic factors of a country

Answer 50

GDP GNP Inflation

Question 51

Fiscal and Monetary policies

Answer 51

Budget balance External debt Interest rates and yield curves

Question 52

Debt securities purchased and held with intention of selling within 1 yr

Answer 52

Held for trading

Question 53

Debt securities purchased for medium term

Answer 53

Available for sale

Question 54

Debt securities for investment, intending to hold until maturity

Answer 54

Held to maturity

Question 55

I = P x R x T/360

Question 56

PV =. FV / (1+rt)

Question 57

Fv = PV (1 + rt)