FI - Module 1

Every six months a bond pays coupon interest equal to 3% of its par value. This bond is a:

• 3% semiannual coupon bond.

• 6% annual coupon bond.

• 6% semiannual coupon bond.

Assuming bond yields are greater than zero, which of the following statements about zero-

coupon bonds is least accurate?

• A zero coupon bond may sell at a premium to par when interest rates decline.

• All interest is earned at maturity.

• The lower the price, the greater the return for a given maturity.

An analyst observes a 5-year, 10% coupon bond with semiannual payments. The face value is £1,000. How much is each coupon payment?

• £50.

• £25.

• £100.

Restrictions on asset sales and additional borrowings by a bond issuer are best characterized as:

• positive covenants

• negative covenants.

• affirmative covenants

A covenant that requires the issuer not to let the insurance coverage lapse on assets pledged as collateral is an example of a(n):

• affirmative covenant.

• inhibiting covenant

• negative covenant

Which of the following fixed income securities is classified as a money market security?

• Newly issued security that will mature in one year

• Security issued 18 months ago that will mature in six months

• Security issued six months ago that will mature in one year.

Which of the following contains the overall rights of the bondholders?

• Covenant

• Indenture

• Rights offering

A bond's indenture least likely specifies the

• source of funds for repayment

• covenants that apply to the issuer

• identity of the lender

Features specified in a bond indenture least likely include the bond's

• coupon rate and maturity date

• issuer and rating

• par value and currency

A bond is trading at a premium if its:

• price is greater than its par value

• redemption value is greater than its face value

• yield is greater than its coupon rate.