Fixed Income HW and Test Banks (Answered) Complete Solution

Fixed Income HW and Test Banks (Answered) Complete Solution These are legally enforceable rules that borrowers and lenders agree on at the time of a new bond issue. What are these rules called? a. Collateral b. Covenants c. Seniority ranking d. Credit enhancement b. Covenants The provision that provides bondholders the right to sell the bond back to the issuer at a predetermined price prior to the bond's maturity date is referred to as: a. a put provision b. a call provision c. a conversion provision d. a negative covenant a. a put provision Which provision in the bond indenture reduces credit risk? a. Step-up coupon bonds b. Sinking fund arrangement c. Deferred coupon bonds d. Payment-in-kind (PIK) coupon bonds b. Sinking fund arrangement What is false about fixed income securities? a. Examples of negative covenants include restrictions on debt, restrictions on distributions to shareholders, restrictions on asset disposals, restrictions on investments, and restrictions on mergers and acquisitions. b. The sources of bond returns are generally capital gains and coupons. c. A callable bond has all the principal repaid at the maturity date if it is called. d. Unlike stocks, fixed income securities have asymmetric returns. c. A callable bond has all the principal repaid at the maturity date if it is called. Relative to an otherwise similar option-free bond, a: a. convertible bond will trade at a higher price. b. callable bond will trade at a lower yield. c. callable bond will trade at a higher price. d. putable bond will trade at a higher price. a. convertible bond will trade at a higher price. Which is NOT included in the bond indenture? a. Current bond price b. Maturity c. Par value d. Coupon rate a. Current bond price What is the lowest long-term investment-grade credit rating of S&P? Write down the rating symbol. BBB- Which coupon payment structure does not affect credit risk? a. Floating-rate notes b. Deferred coupon bonds c. Step-up coupon bonds d. Payment-in-kind (PIK) coupon bonds