IFIC Study Guide – Chapter 7: Equity, Fixed Income,
Balanced & Specialty Funds
-bonds (gov and corporate)
-guaranteed investment certificates (GICs),
-Treasury bills (T-bills)
bankers' acceptances
-commercial paper. - correct answer ✔✔Fixed Income Security Examples
-common shares
-preferred shares - correct answer ✔✔Equity Securities Examples
-debt issued by an entity in the financial market and sold to investors.
-loans that investors make to governments and corporations.
-represent the debt of the issuing entity and investors become creditors of the issuing
organization.
-pay, or are expected to pay, a fixed amount of return on a regular basis to investors (principal
and interest) - correct answer ✔✔Fixed-Income Securities
-the terms of a fixed-income security include a promise to repay the maturity value or principal
on the maturity date, and to pay interest at stated intervals over the life of the security. These
regular payments made from the issuer to the holder of the debt are called coupons.
-the coupon represents the "fixed" income the bondholder receives from holding the bond, and
is also referred to as interest income, bond income or coupon income
-calculated at face value of bond - correct answer ✔✔Coupons (Coupon Rate)
,-if a corporation believes they can earn a greater return on cash invested in their business than
it would cost to borrow money, they can increase the return on the business by borrowing
money. - correct answer ✔✔Leverage
-loans that investors make to governments and corporations. The borrower (the government or
corporation) agrees to make regular interest payments (coupon payments) and pay back the
principal or par value (original amount issued) on the bond's maturity date.
-bonds are a long-term, fixed obligation debt security that is secured by physical assets. If this
security goes into default
-only purchased in specific denominations (ex: $1000
-After being issued, bonds are bought and sold between investors in the secondary market at a
stated price and a quoted yield
-the coupon rate, along with the face value and maturity date, do not change, the price and
yield of a bond fluctuates from day to day - correct answer ✔✔Bonds
-multiply the par value of the bond by the annual coupon rate and then divides the result by
two to arrive at the semi-annual payment amount. - correct answer ✔✔Semi-Annual Coupon
Payment Calculation
-date at which the bond matures or expires. On this date, the bondholder expects to get the par
value or principal of the bond paid back. - correct answer ✔✔Maturity Date
-if the yield (interest rate) is equal to the coupon rate, the bond is trading at par.
-bond prices are quoted using an index with a base value of 100.
-bond trading at 100 is said to be trading at face value, or par - correct answer ✔✔Trading at
Face Value (Par)
-if the yield (interest rate) is greater than the coupon rate, the bond is trading at a discount
-a bond trading below par, say at a price of 98, is said to be trading at a discount
-interest rate, yield and yield to maturity - correct answer ✔✔Trading Below Par (Discount)
, -if the yield (interest rate) is lower than the coupon rate, the bond is trading at a premium
-a bond trading above par, say at a price of 104, is said to be trading at a premium. - correct
answer ✔✔Trading Above Par (Premium)
-issued by the federal, provincial and municipal governments in order to finance public spending
-There is an active secondary market for marketable government bonds on the over-the-counter
(OTC) market.
-virtually no default risk (governments can simply increase taxes to make good on the promise
to make the coupon payment or repay the par value at maturity) but still have interest rate risk
-federal least risky, municipal most - correct answer ✔✔Government Bonds
-risk that the issuer would not be able to repay the coupon over the life of the bond or the
principal at maturity - correct answer ✔✔Default Risk
-short-term government obligations. They are offered in denominations from $1,000 up to $1
million
-traditionally appealed to large institutional investors such as banks, insurance companies, and
trust and loan companies, to some wealthy individual investors, and retail investors
-do not pay interest
-sold at a discount (below par) and mature at 100 (return is taxable income, not a capital gain)
-every two weeks, T- bills are sold at auction by the Minister of Finance through the Bank of
Canada. These bills have original terms to maturity of approximately three months, six months
and one year. - correct answer ✔✔Treasury Bill
-provincial bonds
-promises to pay, and their value depends on the issuer's ability to pay interest and repay
principal.
Balanced & Specialty Funds
-bonds (gov and corporate)
-guaranteed investment certificates (GICs),
-Treasury bills (T-bills)
bankers' acceptances
-commercial paper. - correct answer ✔✔Fixed Income Security Examples
-common shares
-preferred shares - correct answer ✔✔Equity Securities Examples
-debt issued by an entity in the financial market and sold to investors.
-loans that investors make to governments and corporations.
-represent the debt of the issuing entity and investors become creditors of the issuing
organization.
-pay, or are expected to pay, a fixed amount of return on a regular basis to investors (principal
and interest) - correct answer ✔✔Fixed-Income Securities
-the terms of a fixed-income security include a promise to repay the maturity value or principal
on the maturity date, and to pay interest at stated intervals over the life of the security. These
regular payments made from the issuer to the holder of the debt are called coupons.
-the coupon represents the "fixed" income the bondholder receives from holding the bond, and
is also referred to as interest income, bond income or coupon income
-calculated at face value of bond - correct answer ✔✔Coupons (Coupon Rate)
,-if a corporation believes they can earn a greater return on cash invested in their business than
it would cost to borrow money, they can increase the return on the business by borrowing
money. - correct answer ✔✔Leverage
-loans that investors make to governments and corporations. The borrower (the government or
corporation) agrees to make regular interest payments (coupon payments) and pay back the
principal or par value (original amount issued) on the bond's maturity date.
-bonds are a long-term, fixed obligation debt security that is secured by physical assets. If this
security goes into default
-only purchased in specific denominations (ex: $1000
-After being issued, bonds are bought and sold between investors in the secondary market at a
stated price and a quoted yield
-the coupon rate, along with the face value and maturity date, do not change, the price and
yield of a bond fluctuates from day to day - correct answer ✔✔Bonds
-multiply the par value of the bond by the annual coupon rate and then divides the result by
two to arrive at the semi-annual payment amount. - correct answer ✔✔Semi-Annual Coupon
Payment Calculation
-date at which the bond matures or expires. On this date, the bondholder expects to get the par
value or principal of the bond paid back. - correct answer ✔✔Maturity Date
-if the yield (interest rate) is equal to the coupon rate, the bond is trading at par.
-bond prices are quoted using an index with a base value of 100.
-bond trading at 100 is said to be trading at face value, or par - correct answer ✔✔Trading at
Face Value (Par)
-if the yield (interest rate) is greater than the coupon rate, the bond is trading at a discount
-a bond trading below par, say at a price of 98, is said to be trading at a discount
-interest rate, yield and yield to maturity - correct answer ✔✔Trading Below Par (Discount)
, -if the yield (interest rate) is lower than the coupon rate, the bond is trading at a premium
-a bond trading above par, say at a price of 104, is said to be trading at a premium. - correct
answer ✔✔Trading Above Par (Premium)
-issued by the federal, provincial and municipal governments in order to finance public spending
-There is an active secondary market for marketable government bonds on the over-the-counter
(OTC) market.
-virtually no default risk (governments can simply increase taxes to make good on the promise
to make the coupon payment or repay the par value at maturity) but still have interest rate risk
-federal least risky, municipal most - correct answer ✔✔Government Bonds
-risk that the issuer would not be able to repay the coupon over the life of the bond or the
principal at maturity - correct answer ✔✔Default Risk
-short-term government obligations. They are offered in denominations from $1,000 up to $1
million
-traditionally appealed to large institutional investors such as banks, insurance companies, and
trust and loan companies, to some wealthy individual investors, and retail investors
-do not pay interest
-sold at a discount (below par) and mature at 100 (return is taxable income, not a capital gain)
-every two weeks, T- bills are sold at auction by the Minister of Finance through the Bank of
Canada. These bills have original terms to maturity of approximately three months, six months
and one year. - correct answer ✔✔Treasury Bill
-provincial bonds
-promises to pay, and their value depends on the issuer's ability to pay interest and repay
principal.
