CISI chapter 4 questions BONDS with
correct answers
Which type of financial instrument can generate cash flows known as strips? - Answer -
Government bonds
Which of the following advantages will accrue to the holders of an index linked bond as
opposed to those holding other forms of bonds - Answer -Income flow is protected from
the effects of inflation
A bond with a 5% coupon, redeemable in 2030, is trading at £82 per £100 nominal.
What would be the flat yield on this bond? - Answer -6.10.... 5/82x100= 6.1
What are non-investment grade bonds - Answer -Bonds carrying a rating lower than
Moody's Baa, or BBB with S&P or Fitch
An investor exercised the conversion option under a convertible bond. What did they
recieve in return? - Answer -Ordinary shares
What is the main risk when owning a bond? - Answer -Market Risk
If interest rates are forecast to fall in the next six months which of the following parties to
a bond would be in the most favourable position? - Answer -An issuer with a call
position
Bond x has a coupon of 2.8% and bond Y has a coupon of 3.2%. This indicates that? -
Answer -For an identical nominal amount, Bond Y will pay more interest.
A credit rating agency describes bond A as medium grade and bond B as high quality.
This means that? - Answer -Both are rates investment grade
Permanent interest- bearing shares are issued by which type of organisation? - Answer
-Building societies
Bond X and Bond Y are rates AA and BB, by standard and poor's. This indicates that? -
Answer -Bond Y is likely to have a higher yield than bond X
What is the flat yield on a 3.5% treasury bond with five years to redemption. And
currently trading at 97? - Answer -3.61%........3. x 100 = 3.61%
correct answers
Which type of financial instrument can generate cash flows known as strips? - Answer -
Government bonds
Which of the following advantages will accrue to the holders of an index linked bond as
opposed to those holding other forms of bonds - Answer -Income flow is protected from
the effects of inflation
A bond with a 5% coupon, redeemable in 2030, is trading at £82 per £100 nominal.
What would be the flat yield on this bond? - Answer -6.10.... 5/82x100= 6.1
What are non-investment grade bonds - Answer -Bonds carrying a rating lower than
Moody's Baa, or BBB with S&P or Fitch
An investor exercised the conversion option under a convertible bond. What did they
recieve in return? - Answer -Ordinary shares
What is the main risk when owning a bond? - Answer -Market Risk
If interest rates are forecast to fall in the next six months which of the following parties to
a bond would be in the most favourable position? - Answer -An issuer with a call
position
Bond x has a coupon of 2.8% and bond Y has a coupon of 3.2%. This indicates that? -
Answer -For an identical nominal amount, Bond Y will pay more interest.
A credit rating agency describes bond A as medium grade and bond B as high quality.
This means that? - Answer -Both are rates investment grade
Permanent interest- bearing shares are issued by which type of organisation? - Answer
-Building societies
Bond X and Bond Y are rates AA and BB, by standard and poor's. This indicates that? -
Answer -Bond Y is likely to have a higher yield than bond X
What is the flat yield on a 3.5% treasury bond with five years to redemption. And
currently trading at 97? - Answer -3.61%........3. x 100 = 3.61%
