FIL 241 Sherill exam 2 review latest update 2022

FIL 241 Sherill exam 2 review latest update 2022What are some of the differences in the money markets and capital markets? Money markets = short term Capital markets = long term What is a bond? Security that obligates issuer to make payments to holder over time 00:54 01:23 what is Face Value or Par Value Payment to bondholder at maturity of bond ($1000 default) what is Maturity date Issuer repays the debt by paying the bond holder the par value of the bond what is Coupon rate annual interest rate on par value What risks do treasury bonds and notes have and not have? free of default risk and Inflation risk and liquidity risk are present For a long term bond, is inflation risk a big concern? inflation is detrimential to long term bonds Describe how liquid T notes and bonds are T notes are 1-10 years maturity T bonds are 10+ year maturities Liquidity is higher for newer issued securities than older ones ... T bills range from 1 month – 1 year and have no periodic interest rate and and they let investors buy discounted and sell back at par value T notes & bonds pay Periodic interest rate twice a year and are Sold for close to par value what are Separate trading of registered internet and principal of securities (STRIPS) Treasury oversees creation of zero-coupon bonds from coupon-bearing notes and bonds, Takes all the coupon payments and face value and breaks each into individual zero-coupon bond how are STRIPS bought STRIPS are bought from financial institutions, brokers, and dealers, not treasury How does the risk of STIPS compare to other treasuries? STRIPS have low risk compared to other treasuries 00:03 01:23 What does “zero coupon bond” mean? bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond "matures" or comes due What does “dirty price” and “clean price” mean? With clean price, a change in price means there has been change in overall market With dirty price, it is the clean price (quoted)+ accrued interest What economic scenarios would make TIPS most attractive for investors Low inflation rates would make TIPS attractive for investors How do the basic mechanics of inflation adjusting work for TIPS? Inflation adjustments every 6 months What is special about TIPS? Par value of bond increases with consumer price index Who issues TIPS Treasury issues tips Understand the difference in the primary and secondary market for Treasuries Primary markets have Auctions similar to t bill and Has competitive and non competitive bids and All accepted bids pay stop out yield Secondary markets Trade with brokers and dealers and have a Average trading volume for treasuries of $492.1 billion If someone wants to purchase a bond issued months ago, would they buy this in the primary or secondary markets? You would purchase bonds that are already created in secondary markets Who issues municipal bonds Muni bonds are issued by state and local gov. what are the taxx benefits of a muni bond for an investor and how does it impact bond yields Muni bonds are exempt from state and local taxes in the issuing state