Fixed Income Securities Test 1 (Answered) Complete Solution

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