BSNS114 Exam with Questions and 100%
Correct Answers
What is a pure discount loan? (write full def)
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer interest and principle are paid as a lump sum at maturity
What is an interest only loan?
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer interest is paid periodically and principle is paid at maturity
What is an amortised loan?
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer equal payments are made regularly, including a portion of principle and interest
What loan payment structure do bonds use?
- interest only
- amortised loan
- pure discount loan - Answer interest only loan
, which loan payment structure do mortgages use?
- interest only
- amortised loan
- pure discount loan - Answer amortised loan
what are the two different levels of security on a bond - Answer collateralised,
debentures
what are the two ways that bonds are classified? - Answer level of security, level of
seniority
Pure discount bonds:
- trade at par
- trade at a premium to par
- trade at a discount to par - Answer trade at a discount to par
pure discount bonds: (write which is true)
- offer a lower yield than other bonds with the same maturity and risk
- offer a higher yield than other bonds with the same maturity and risk because they
don't pay interest
- pay interest at regular intervals
- trade at a premium to par today - Answer offer a higher yield than other bonds with
the same maturity and risk because they don't pay interest
a decrease in YTM (interest rates) will cause:
- bonds to increase in price, as the PV of cash flows increases
Correct Answers
What is a pure discount loan? (write full def)
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer interest and principle are paid as a lump sum at maturity
What is an interest only loan?
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer interest is paid periodically and principle is paid at maturity
What is an amortised loan?
a. interest is paid periodically and principle is paid at maturity
b. interest and principle are paid as a lump sum at maturity
c. equal payments are made regularly, including a portion of principle and interest -
Answer equal payments are made regularly, including a portion of principle and interest
What loan payment structure do bonds use?
- interest only
- amortised loan
- pure discount loan - Answer interest only loan
, which loan payment structure do mortgages use?
- interest only
- amortised loan
- pure discount loan - Answer amortised loan
what are the two different levels of security on a bond - Answer collateralised,
debentures
what are the two ways that bonds are classified? - Answer level of security, level of
seniority
Pure discount bonds:
- trade at par
- trade at a premium to par
- trade at a discount to par - Answer trade at a discount to par
pure discount bonds: (write which is true)
- offer a lower yield than other bonds with the same maturity and risk
- offer a higher yield than other bonds with the same maturity and risk because they
don't pay interest
- pay interest at regular intervals
- trade at a premium to par today - Answer offer a higher yield than other bonds with
the same maturity and risk because they don't pay interest
a decrease in YTM (interest rates) will cause:
- bonds to increase in price, as the PV of cash flows increases
