Fixed-Income Securities: Defining Elements

Basic Features and Coupon Structures

Match the following government sector bonds to their respective class.
(drag the elements to the correct boxes)

Basic Features and Coupon Structures

A bond pays no interest for the first 2 years. It pays a coupon rate of 12% from the third year until maturity on the tenth year, together with the return of principal.

What is the most appropriate classification of this bond based on maturity?

Basic Features and Coupon Structures

A bond pays no interest for the first 2 years. It pays a coupon rate of 12% from the third year until maturity on the tenth year, together with the return of principal.

What is the most appropriate classification of this bond based on coupon structure?

Basic Features and Coupon Structures

The coupon rate of a floating-rate note that makes payments every year in March and September is the 180-day LIBOR + 30 bps.

The 180-day LIBOR in March this year was 1.5%, and 2.0% in September.  What is the interest rate that applies for the September coupon?

Basic Features and Coupon Structures

Dominic is a US-based bond investor who wishes to invest in a Mexican-based company.  He is wary of foreign exchange risk, yet would like to have the opportunity to participate in the appreciation of the Mexican peso.

Which of the following is the most appropriate choice for Dominic?

Basic Features and Coupon Structures

Match the descriptions to the type of inflation-linked bond.

Basic Features and Coupon Structures

Match the descriptions to the type of inflation-linked bond.

Basic Features and Coupon Structures

A 10-year, 7% semi-annual fixed coupon bond has a face value of $1000 and is currently trading at $1050. How much is each coupon payment?

Basic Features and Coupon Structures

Which of the following statements is true regarding US Treasury Inflation Protection Securities (TIPS)?

Legal, Regulatory and Tax Considerations

Which of the following are most likely the characteristics of a bond trustee?

Legal, Regulatory and Tax Considerations

Which of the following is least accurate of unsecured bonds?

Legal, Regulatory and Tax Considerations

Supreme Corp has a vehicle leasing business segment in which it has issued bonds such that the cash flows of the vehicle leasing business goes to the bondholders. The bond issue is structured as an Asset-backed Security (ABS) under a Special Purpose Vehicle.

Last year, the vehicle leasing business did badly and its cash flow could not meet the obligations to the ABS bondholders. What recourse do the ABS bondholders have against Supreme Corp?

Legal, Regulatory and Tax Considerations

Supreme Corp has a vehicle leasing business segment in which it has issued bonds such that the cash flows of the vehicle leasing business goes to the bondholders. The bond issue is structured as an Covered Bond.

Last year, the vehicle leasing business did badly and its cash flow could not meet the obligations to the Covered bondholders. What recourse do the Covered bondholders have against Supreme Corp?

Legal, Regulatory and Tax Considerations

Which of the following are internal credit enhancements?

Legal, Regulatory and Tax Considerations

An ABS is required to make $5 million of payments to its bondholders, but it only has $4 million to pay. The ABS has a credit enhancement feature where a bank proves a letter of credit to the ABS. What is the bank’s obligation in this situation?

Legal, Regulatory and Tax Considerations

Which of the statements is most accurate regarding covenants?

Legal, Regulatory and Tax Considerations

Match the bonds to their jurisdiction. (Drag and drop)

Contingency Provisions

A company anticipates that interest rates will fall and wishes to be able to take advantage of cheaper borrowing rates in the future if that happens. Which type of bonds should the company issue now?

Contingency Provisions

Match the description to the style of callable bond. (Drag and drop)

Contingency Provisions

An investor anticipates that interest rates will fall in the near term. Which type of bonds should the investor buy?

Contingency Provisions

Which of the following statements is most accurate?

Contingency Provisions

A convertible bond has a conversion price of $50. The par value of each bond is $1000, and is currently trading at $1060. The company shares is currently trading at $70, and the bondholder has decided to convert one bond. What is the conversion premium?