CFA Level 1 - Fixed Income Study Guide

Bond Indenture CORRECT ANSWER Contract that specifies all the rights and obligations of the issuer and owners of a fixed income security. Negative Covenants CORRECT ANSWER Prohibitions on the borrower. Affirmative Covenants CORRECT ANSWER Actions that the borrower promises to perform. Maturity or Term to Maturity CORRECT ANSWER Length of time until loan contract or agreement expires. Remaining life of bond. Par Value CORRECT ANSWER Amount borrower promises to pay on or before maturity date. Coupon Rate CORRECT ANSWER Rate when multiplied by Par Value gives amount of annual interest payment. Zero-Coupon Bonds CORRECT ANSWER Bonds that do not pay interest; Instead sold at a deep discount from par values. Market convention states semi-annual compounding used when pricing zeros. Non-Amortizing Bond (Bullet Bond or Bullet Maturity) CORRECT ANSWER Characteristic of most T-Bonds and Corporate bonds. Pay only interest until maturity, at which time full face value is paid back. Bullet Bonds CORRECT ANSWER Pay entire principal in one lump sum at maturity.