What is the relationship between the discounting rate and the coupon rate in Bonds?
When dealing with plain vanilla fixed-income securities, there is a clear relationship between the discounting rate of the cash flows and the coupon rate reflecting the trading price (below, above or at par). If the coupon rate is lower than the discounting rate in percentage terms, we conclude that: a) The bond is trading below
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How are cash-based or accrual-based principles related to private and public issuers?
When analyzing fixed-income securities, issuers can be either public or private. Which of the following sentence is true according to the CFA Institute? a) Public issuers use accrual-based principles (GAAP) while private issuers use cash-based principles. b) Private issuers use accrual-based principles (GAAP) while public issuers use cash-based principles. c) Both public and private issuers
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What is the main difference between committed and uncommitted lines of credit?
Lines of credit are a relevant way of external loan financing for companies. Which of the following sentence better represents the main difference between committed and uncommitted lines of credit? a) Uncommitted lines of credit are more reliable, more flexible, and cheaper than committed lines of credit, and firms can have it as a primary
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What is the meaning of “fallen angels” in terms credit quality in fixed-income securities?
Which of the following sentences better explains the concept of a “fallen angel” in terms of creditworthiness of bonds, according to the CFA Institute? a) Fallen angels are high-yield (speculative grade) bond issuers whose credit quality has deteriorated in the last 12 months. b) Fallen angels are formerly investment-grade issuers whose credit quality has deteriorated
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What are the main principal repayment structures in fixed-income securities?
When dealing with the main repayment structures of fixed-income securities, we can find different methods for amortization. Mark the correct sentence regarding repayment structures of bonds. a) Bullet bonds are based on the French Amortization Method, and in this type of repayment structure, annuities are made up of interest only. b) Fully amortized bonds are
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What is the difference between money markets and capital markets?
When dealing with fixed-income securities, we can classify them as money market or capital market securities. Mark the correct sentence regarding this classification. a) Treasury bills, commercial paper, consols, and certificates of deposits are classified as money market instruments. b) The difference between money markets and capital markets depends on maturity as of today. c)
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