Fixed Income - Quiz 1

8 questions

1. 1. An investor buys a given amount of the US Treasury bond with coupon 4% and maturity January 1, 2018. The current clean price of the bond is 96.25625. The bond paid the coupon semi-annually on every January 1 and July 1. The settlement date was April 4, 2013.

   Calculate the dirty price of the bond.

   95.2286297.2838597.30597
2. 2. An investor purchased 100 bonds at a full price of $1045 each. The purchase was made between the coupon dates, and there was accrued interest of $20 on the bond. Calculate the clean price of the bond.
   $1,000$1,025$1,065
3. 3. A floating rate note differs from a bond because:
   the coupon or interest rate for each interest period is variable the interest or coupon payment is expressed as a percentage of par on a bond basis the principal is only repaid at maturity
4. 4. Which of the following statements about a bond indenture is FASLE?
   A bond indenture is a formal legal agreement that details the obligations of the bond issuer and the rights of investors.A bond indenture is a corporate bond that is an unsecured loan.Bond indenture covenants are an arrangement between issuer and bond holders.
5. 5. Consider the following statements with respect to a corporate bond's maturity.

   I. A bond's maturity is the date on which the contractual obligations of the issuer are fulfilled.

   II. On the bond's maturity date, the issuer has to pay back the full amount of the outstanding principal, plus any accrued interest to the issuer.

   III. The bond's term to maturity cannot be modified by either the issuer or the bondholder.

   Which of the above statements is (are) true?

   I onlyI and IIII and III
6. 6. Which of the following statements about a callable bond is least accurate?
   The price of a callable bond is lower than a similar non-callable bond.The call option feature is a benefit to the bondholder because they can reinvest if market interest rates increase.The call option feature is a benefit to the issuer because the issuer can refinance if market interest rates decline.
7. 7. Which of the following options in a bond will NOT allow an issuer to retire the bond early?
   Sinking fundCall optionConversion option
8. 8. City Union Bank sells some securities, making a simultaneous promise to buy them back, at a later time. City Union Bank has:
   Borrowed funds through the commercial paper market.Invested, through the federal funds market.Raised funds, through a repurchase agreement.