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Alternative Investments
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Question 1 of 30
1. Question
Which of these terms is used to refer to the many asset classes that fall outside the traditional definitions of stocks and bonds?
Correct
Alternative investments refer to the many asset classes that fall outside the traditional definitions of stocks and bonds. Each alternative investment has unique characteristics that require a different approach by the analyst.
Incorrect
Alternative investments refer to the many asset classes that fall outside the traditional definitions of stocks and bonds. Each alternative investment has unique characteristics that require a different approach by the analyst.
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Question 2 of 30
2. Question
A contingency provision requires a specific event or action to take place in order for the contract to be considered valid. Which of the following statements concerning “contingency provisions” is true?
I. A contingency provision in a contract describes an action that may be taken if an event (the contingency) actually occurs.
II. Contingency provisions in bond indentures are referred to as embedded options.
III. Bonds that have contingency provisions are referred to as option-free bonds.
IV. Bonds that have contingency provisions are referred to as straight bonds.Correct
A contingency provision in a contract describes an action that may be taken if an event (the contingency) actually occurs. Contingency provisions in bond indentures are referred to as embedded options, embedded in the sense that they are an integral part of the bond contract and are not a separate security. Bonds that do not have contingency provisions are referred to as straight or option-free bonds.
Incorrect
A contingency provision in a contract describes an action that may be taken if an event (the contingency) actually occurs. Contingency provisions in bond indentures are referred to as embedded options, embedded in the sense that they are an integral part of the bond contract and are not a separate security. Bonds that do not have contingency provisions are referred to as straight or option-free bonds.
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Question 3 of 30
3. Question
A call option gives the issuer the right to redeem all or part of a bond issue at a specific price (call price) if they choose to. Through which of the following ways does a call option add value to the issuer?
I. It gives the issuer the right to redeem the bond.
II. It increases the issuer’s interest expense.
III. It gives the issuer the right to issue a new bond.
IV. It reduces the issuer’s bond value.Correct
A call option has value to the issuer because it gives the issuer the right to redeem the bond and issue a new bond (borrow) if the market yield on the bond declines. This could occur either because interest rates, in general, have decreased or because the credit quality of the bond has increased (default risk has decreased). The issuer will only choose to exercise the call option when it is to their advantage to do so. That is, they can reduce their interest expense by calling the bond and issuing new bonds at a lower yield.
Incorrect
A call option has value to the issuer because it gives the issuer the right to redeem the bond and issue a new bond (borrow) if the market yield on the bond declines. This could occur either because interest rates, in general, have decreased or because the credit quality of the bond has increased (default risk has decreased). The issuer will only choose to exercise the call option when it is to their advantage to do so. That is, they can reduce their interest expense by calling the bond and issuing new bonds at a lower yield.
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Question 4 of 30
4. Question
A convertible bond is a fixed-income corporate debt security that yields interest payments but can be converted into a predetermined number of common stock or equity shares. Which of these statements is not true for convertible bonds?
I. Convertible bonds are typically issued with maturities of 5–10 months.
II. The value of a convertible bond will be at least equal to its bond value without the conversion option.
III. Convertible bonds give bondholders the option to exchange the bond for a specific number of shares of the issuing corporation’s common stock.
IV. Convertible bonds are typically issued with maturities of 5–10 years.Correct
Convertible bonds are typically issued with maturities of 5–10 years. They give bondholders the option to exchange the bond for a specific number of shares of the issuing corporation’s common stock. Regardless of the price of the common shares, the value of a convertible bond will be at least equal to its bond value without the conversion option. Because the conversion option is valuable to bondholders, convertible bonds can be issued with lower yields compared to otherwise identical straight bonds.
Incorrect
Convertible bonds are typically issued with maturities of 5–10 years. They give bondholders the option to exchange the bond for a specific number of shares of the issuing corporation’s common stock. Regardless of the price of the common shares, the value of a convertible bond will be at least equal to its bond value without the conversion option. Because the conversion option is valuable to bondholders, convertible bonds can be issued with lower yields compared to otherwise identical straight bonds.
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Question 5 of 30
5. Question
A bondholder is an investor or the owner of debt securities that are typically issued by corporations and governments. Which of the following is an alternative way to give bondholders an opportunity for additional returns when the firm’s common shares increase in value?
Correct
An alternative way to give bondholders an opportunity for additional returns when the firm’s common shares increase in value is to include warrants with straight bonds when they are issued. Warrants give their holders the right to buy the firm’s common shares at a given price over a given period of time. Including warrants, which are sometimes referred to as a “sweetener,” makes the debt more attractive to investors because it adds potential upside profits if the common shares increase in value.
Incorrect
An alternative way to give bondholders an opportunity for additional returns when the firm’s common shares increase in value is to include warrants with straight bonds when they are issued. Warrants give their holders the right to buy the firm’s common shares at a given price over a given period of time. Including warrants, which are sometimes referred to as a “sweetener,” makes the debt more attractive to investors because it adds potential upside profits if the common shares increase in value.
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Question 6 of 30
6. Question
A bond indenture is a contract associated with a bond. Which of the following statements best describes a bond indenture?
Correct
The legal contract between the bond issuer (borrower) and bondholders (lenders) is called a trust deed, and in the United States and Canada, it is also often referred to as the bond indenture. A bond indenture or trust deed is a contract between a bond issuer and the bondholders, which defines the bond’s features and the issuer’s obligations. An indenture specifies the entity issuing the bond, the source of funds for repayment, assets pledged as collateral, credit enhancements, and any covenants with which the issuer must comply.
Incorrect
The legal contract between the bond issuer (borrower) and bondholders (lenders) is called a trust deed, and in the United States and Canada, it is also often referred to as the bond indenture. A bond indenture or trust deed is a contract between a bond issuer and the bondholders, which defines the bond’s features and the issuer’s obligations. An indenture specifies the entity issuing the bond, the source of funds for repayment, assets pledged as collateral, credit enhancements, and any covenants with which the issuer must comply.
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Question 7 of 30
7. Question
The provisions in the bond indenture are known as covenants. Which of the following types of covenants refers to a clause in a bond indenture that requires the borrower to perform a certain action?
Correct
The provisions in the bond indenture are known as covenants and include both negative covenants (prohibitions on the borrower) and affirmative covenants (actions the borrower promises to perform). Affirmative covenants require the borrower to perform a certain action and do not typically restrict the operating decisions of the issuer. Common affirmative covenants are to make timely interest and principal payments to bondholders, to insure and maintain assets, and to comply with applicable laws and regulations.
Incorrect
The provisions in the bond indenture are known as covenants and include both negative covenants (prohibitions on the borrower) and affirmative covenants (actions the borrower promises to perform). Affirmative covenants require the borrower to perform a certain action and do not typically restrict the operating decisions of the issuer. Common affirmative covenants are to make timely interest and principal payments to bondholders, to insure and maintain assets, and to comply with applicable laws and regulations.
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Question 8 of 30
8. Question
Fixed-income securities are investments that provide a return in the form of fixed periodic interest payments and the eventual return of principal at maturity. Which of the following specifications do the features of fixed-income securities include?
I. The issuer of the bond.
II. The witnesses to the bond.
III. Coupon rate and frequency.
IV. The maturity date of the bond.Correct
The features of a fixed-income security include specification of the following:
– The issuer of the bond.
– The maturity date of the bond.
– The par value (principal value to be repaid).
– Coupon rate and frequency.
– Currency in which payments will be made.Incorrect
The features of a fixed-income security include specification of the following:
– The issuer of the bond.
– The maturity date of the bond.
– The par value (principal value to be repaid).
– Coupon rate and frequency.
– Currency in which payments will be made. -
Question 9 of 30
9. Question
The maturity date of a bond is the date on which the principal is to be repaid. Once a bond has been issued, what is the time remaining until maturity referred to as?
I. The term to maturity of the bond.
II. The tenor of the bond.
III. The upholding of the bond.
IV. The issue of the bond.Correct
Once a bond has been issued, the time remaining until maturity is referred to as the term to maturity or tenor of a bond. When bonds are issued, their terms to maturity range from one day to 30 years or more. Bonds that have no maturity date are called perpetual bonds.
Incorrect
Once a bond has been issued, the time remaining until maturity is referred to as the term to maturity or tenor of a bond. When bonds are issued, their terms to maturity range from one day to 30 years or more. Bonds that have no maturity date are called perpetual bonds.
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Question 10 of 30
10. Question
The coupon rate on a bond is the annual percentage of its par value that will be paid to bondholders. Some bonds pay no interest prior to maturity. What are such bonds referred to as?
I. Zero-coupon bonds
II. Plain vanilla bonds
III. Conventional bonds
IV. Pure discount bondsCorrect
Bonds that pay no interest prior to maturity are called zero-coupon bonds or pure discount bonds. Pure discount refers to the fact that these bonds are sold at a discount to their par value and the interest is all paid at maturity when bondholders receive the par value.
Incorrect
Bonds that pay no interest prior to maturity are called zero-coupon bonds or pure discount bonds. Pure discount refers to the fact that these bonds are sold at a discount to their par value and the interest is all paid at maturity when bondholders receive the par value.
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Question 11 of 30
11. Question
For which of the following reasons would a putable bond sell at a higher price (offer a lower yield) compared to an otherwise identical option-free bond?
I. The choice of whether to exercise the option is the bondholder’s own.
II. The choice of whether to exercise the option is the bond issuer’s own.
III. The choice of whether to exercise the option is the witnesses’.
IV. The choice of whether to exercise the option is the bondholder’s own and bond issuer’s own.Correct
A put option has value to the bondholder because the choice of whether to exercise the option is the bondholder’s. For this reason, a putable bond will sell at a higher price (offer a lower yield) compared to an otherwise identical option-free bond.
Incorrect
A put option has value to the bondholder because the choice of whether to exercise the option is the bondholder’s. For this reason, a putable bond will sell at a higher price (offer a lower yield) compared to an otherwise identical option-free bond.
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Question 12 of 30
12. Question
Alternative investments collectively refer to the many asset classes that fall outside the traditional definitions of stocks and bonds. Which of the following is not an example of alternative investments?
Correct
Alternative investments include hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, primarily collectibles. Each of these alternative investments has unique characteristics that require a different approach by the analyst.
Incorrect
Alternative investments include hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, primarily collectibles. Each of these alternative investments has unique characteristics that require a different approach by the analyst.
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Question 13 of 30
13. Question
Which of the following terms refers to an arrangement by which one party sells a security to a counterparty with a commitment to buy it back at a later date at a specified (higher) price?
Correct
A repurchase agreement is an arrangement by which one party sells a security to a counterparty with a commitment to buy it back at a later date at a specified (higher) price. The repurchase price is greater than the selling price and accounts for the interest charged by the buyer, who is, in effect, lending funds to the seller with the security as collateral.
Incorrect
A repurchase agreement is an arrangement by which one party sells a security to a counterparty with a commitment to buy it back at a later date at a specified (higher) price. The repurchase price is greater than the selling price and accounts for the interest charged by the buyer, who is, in effect, lending funds to the seller with the security as collateral.
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Question 14 of 30
14. Question
Which of these terms refers to the percentage difference between the market value of collateral security and the amount loaned?
I. The interest rate
II. The repayment
III. The repo margin
IV. The haircutCorrect
The repo margin or the haircut refers to the percentage difference between the market value of collateral security and the amount loaned. The Repo margin serves as an insurance to the lender in the event that the value of the security decreases over the term of the repo agreement.
Incorrect
The repo margin or the haircut refers to the percentage difference between the market value of collateral security and the amount loaned. The Repo margin serves as an insurance to the lender in the event that the value of the security decreases over the term of the repo agreement.
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Question 15 of 30
15. Question
Most corporations fund their businesses to some extent with bank loans. These are typically LIBOR-based, variable-rate loans. What type of loan is it called when the loan involves only one bank?
Correct
When the loan involves only one bank, it is referred to as a bilateral loan. Bilateral loans are funds provided to a borrower by one lender. The primary obstacle associated with bilateral loans is that other business partners, not named in the bilateral loan agreement, aren’t restricted from obtaining additional loans.
Incorrect
When the loan involves only one bank, it is referred to as a bilateral loan. Bilateral loans are funds provided to a borrower by one lender. The primary obstacle associated with bilateral loans is that other business partners, not named in the bilateral loan agreement, aren’t restricted from obtaining additional loans.
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Question 16 of 30
16. Question
Which of the following types of bonds are issued by entities created by national governments for specific purposes such as financing small businesses or providing mortgage financing?
I. Agency bonds
II. Quasi-government bonds
III. Short-term bonds
IV. Long-term bondsCorrect
Agency or quasi-government bonds are issued by entities created by national governments for specific purposes such as financing small businesses or providing mortgage financing. In the United States, bonds are issued by government-sponsored enterprises (GSEs), such as the Federal National Mortgage Association and the Tennessee Valley Authority. Some quasi-government bonds are backed by the national government, which gives them high credit quality.
Incorrect
Agency or quasi-government bonds are issued by entities created by national governments for specific purposes such as financing small businesses or providing mortgage financing. In the United States, bonds are issued by government-sponsored enterprises (GSEs), such as the Federal National Mortgage Association and the Tennessee Valley Authority. Some quasi-government bonds are backed by the national government, which gives them high credit quality.
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Question 17 of 30
17. Question
Firms use commercial paper to fund working capital and as a temporary source of funds prior to issuing longer-term debt. Which of the following terms refers to debt that is temporary until permanent financing can be secured?
Correct
Bridge financing refers to debt that is temporary until permanent financing can be secured. Bridge funding, also known as bridge financing, is a form of temporary, intermediate funding intended to cover a business’s short-term expenses until long-term funding is secured. If business owners need money fast so that they can continue their business’s operations, a bridge loan may be a viable option.
Incorrect
Bridge financing refers to debt that is temporary until permanent financing can be secured. Bridge funding, also known as bridge financing, is a form of temporary, intermediate funding intended to cover a business’s short-term expenses until long-term funding is secured. If business owners need money fast so that they can continue their business’s operations, a bridge loan may be a viable option.
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Question 18 of 30
18. Question
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument. For bonds, par value is an essential pricing benchmark. Which of the following statements best describes the par value of a bond?
Correct
The par value of a bond is the principal amount that will be repaid at maturity. The par value is also referred to as the face value, maturity value, redemption value, or principal value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments.
Incorrect
The par value of a bond is the principal amount that will be repaid at maturity. The par value is also referred to as the face value, maturity value, redemption value, or principal value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments.
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Question 19 of 30
19. Question
The maturity date of a bond is the date on which the principal is to be repaid. Which of the following statements is/are accurate differences between money market securities and capital market securities?
I. Bonds with original maturities of one year or less are referred to as money market securities while bonds with original maturities of more than one year are referred to as capital market securities.
II. Bonds with original maturities of more than one year are referred to as money market securities while bonds with original maturities of one year or less are referred to as capital market securities.
III. Bonds with original maturities of exactly two years are referred to as money market securities while bonds with original maturities of more than one year are referred to as capital market securities.
IV. Bonds with original maturities of one to thirty days are referred to as money market securities while bonds with original maturities of one day are referred to as capital market securities.Correct
When bonds are issued, their terms to maturity range from one day to 30 years or more. Bonds with original maturities of one year or less are referred to as money market securities while bonds with original maturities of more than one year are referred to as capital market securities.
Incorrect
When bonds are issued, their terms to maturity range from one day to 30 years or more. Bonds with original maturities of one year or less are referred to as money market securities while bonds with original maturities of more than one year are referred to as capital market securities.
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Question 20 of 30
20. Question
Sometimes an entity is created solely for the purpose of owning specific assets and issuing bonds to provide the funds to purchase the assets. What are these entities referred to as?
I. Special purpose entities (SPEs)
II. Special purpose vehicles (SPVs)
III. Securitized entities (SEs)
IV. Remote entities(REs)Correct
Sometimes an entity is created solely for the purpose of owning specific assets and issuing bonds to provide the funds to purchase the assets. These entities are referred to as special purpose entities (SPEs) in the United States and special purpose vehicles (SPVs) in Europe. Bonds issued by these entities are called securitized bonds.
Incorrect
Sometimes an entity is created solely for the purpose of owning specific assets and issuing bonds to provide the funds to purchase the assets. These entities are referred to as special purpose entities (SPEs) in the United States and special purpose vehicles (SPVs) in Europe. Bonds issued by these entities are called securitized bonds.
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Question 21 of 30
21. Question
A sovereign bond is a debt security issued by a national government. Sovereign bonds can be denominated in a foreign currency or the government’s domestic currency. Which of the following statements is true for sovereign bonds?
I. Bonds issued by non-sovereign government entities are repaid by either general taxes, revenues of a specific project, or by special taxes or fees dedicated to bond repayment.
II. Sovereign bonds are never repaid by the tax receipts of the issuing country.
III. Sovereign bonds are typically repaid by the tax receipts of the issuing country.
IV. A sovereign bond is a debt security issued by a private firm.Correct
A sovereign bond is a debt security issued by a national government. Sovereign bonds are typically repaid by the tax receipts of the issuing country. Bonds issued by non-sovereign government entities are repaid by either general taxes, revenues of a specific project (e.g., an airport), or by special taxes or fees dedicated to bond repayment (e.g., a water district or sewer district).
Incorrect
A sovereign bond is a debt security issued by a national government. Sovereign bonds are typically repaid by the tax receipts of the issuing country. Bonds issued by non-sovereign government entities are repaid by either general taxes, revenues of a specific project (e.g., an airport), or by special taxes or fees dedicated to bond repayment (e.g., a water district or sewer district).
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Question 22 of 30
22. Question
Unsecured bonds represent a claim to the overall assets and cash flows of the issuer. Secured bonds are backed by a claim to specific assets of a corporation, which reduces their risk of default and, consequently, the yield that investors require on the bonds. For which of the following reasons are secured bonds senior to unsecured bonds?
Correct
Secured bonds are senior to unsecured bonds because they are backed by collateral. A secured bond is a type of bond that is secured by the issuer’s pledge of a specific asset, which is a form of collateral on the loan while unsecured loans are loans where lending happens without the backing of equal value collateral.
Incorrect
Secured bonds are senior to unsecured bonds because they are backed by collateral. A secured bond is a type of bond that is secured by the issuer’s pledge of a specific asset, which is a form of collateral on the loan while unsecured loans are loans where lending happens without the backing of equal value collateral.
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Question 23 of 30
23. Question
Which of these terms best refers to the value of having the physical commodity for use over the period of the futures contract?
Correct
Convenience yield refers to the value of having the physical commodity for use over the period of the futures contract. If there is little or no convenience yield, futures prices will be higher than spot prices, a situation termed contango. When the convenience yield is high, futures prices will be less than spot prices, a situation referred to as backwardation.
Incorrect
Convenience yield refers to the value of having the physical commodity for use over the period of the futures contract. If there is little or no convenience yield, futures prices will be higher than spot prices, a situation termed contango. When the convenience yield is high, futures prices will be less than spot prices, a situation referred to as backwardation.
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Question 24 of 30
24. Question
Which of the following refers to the combination of a call with an exercise price and a pure-discount, riskless bond that pays at maturity (option expiration)?
Correct
A fiduciary call refers to the combination of a call with exercise price and a pure-discount, riskless bond that pays at maturity. A fiduciary call is a trading strategy that an investor can use, if they have the funds, to reduce the costs inherent in exercising a call option.
Incorrect
A fiduciary call refers to the combination of a call with exercise price and a pure-discount, riskless bond that pays at maturity. A fiduciary call is a trading strategy that an investor can use, if they have the funds, to reduce the costs inherent in exercising a call option.
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Question 25 of 30
25. Question
Futures contracts are similar to forward contracts in that both have contract prices set so each side of the contract has a value of zero value at the initiation of the contract and they can be either deliverable or cash-settled. Which of the following is a major difference between forwards contracts and futures contracts?
I. Futures contracts trade on organized exchanges while forwards are private contracts and typically do not trade.
II. A clearinghouse is a counterparty to all forward contracts while futures are contracts with the originating counterparty and therefore have counterparty (credit) risk.
III. Futures contracts are standardized while forwards are customized contracts satisfying the specific needs of the parties involved.
IV. The government regulates futures markets while forward contracts are usually not regulated and do not trade in organized markets.Correct
Futures contracts differ from forward contracts in the following ways:
– Futures contracts trade on organized exchanges. Forwards are private contracts and typically do not trade.
– Futures contracts are standardized. Forwards are customized contracts satisfying the specific needs of the parties involved.
– A clearinghouse is a counterparty to all futures contracts. Forwards are contracts with the originating counterparty and therefore have counterparty (credit) risk.
– The government regulates futures markets. Forward contracts are usually not regulated and do not trade in organized markets.Incorrect
Futures contracts differ from forward contracts in the following ways:
– Futures contracts trade on organized exchanges. Forwards are private contracts and typically do not trade.
– Futures contracts are standardized. Forwards are customized contracts satisfying the specific needs of the parties involved.
– A clearinghouse is a counterparty to all futures contracts. Forwards are contracts with the originating counterparty and therefore have counterparty (credit) risk.
– The government regulates futures markets. Forward contracts are usually not regulated and do not trade in organized markets. -
Question 26 of 30
26. Question
Which term refers to an average of the prices of the trades during the last period of trading, called the closing period, which is set by the exchange?
Correct
Settlement price refers to the average of the prices of the trades during the last period of trading which is set by the exchange. The settlement price is the average price at which a contract trades, calculated at both the open and close of each trading day, and it is important because it determines whether a trader is required to post additional margins.
Incorrect
Settlement price refers to the average of the prices of the trades during the last period of trading which is set by the exchange. The settlement price is the average price at which a contract trades, calculated at both the open and close of each trading day, and it is important because it determines whether a trader is required to post additional margins.
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Question 27 of 30
27. Question
A callable bond is a bond that can be redeemed (called in) by the issuer prior to its maturity. Which of the following is a style of exercise for callable bonds?
I. American style of exercise
II. European style of exercise
III. Bermuda style of exercise
IV. Asian style of exerciseCorrect
There are three styles of exercise for callable bonds. They are as follows:
– American style (the bonds can be called anytime after the first call date).
– European style (the bonds can only be called on the call date specified).
– Bermuda style (the bonds can be called on specified dates after the first call date often on coupon payment dates).These are only style names and are not indicative of where the bonds are issued.
Incorrect
There are three styles of exercise for callable bonds. They are as follows:
– American style (the bonds can be called anytime after the first call date).
– European style (the bonds can only be called on the call date specified).
– Bermuda style (the bonds can be called on specified dates after the first call date often on coupon payment dates).These are only style names and are not indicative of where the bonds are issued.
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Question 28 of 30
28. Question
Secondary markets refer to the trading of previously issued bonds. The secondary market is where investors buy and sell securities from other investors. In which of the following places are secondary market bond transactions likely to take place?
Correct
The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued. While some government bonds and corporate bonds are traded on exchanges, the great majority of bond trading in the secondary market is made in the dealer, or over-the-counter, market. Dealers post bid (purchase) prices and ask or offer (selling) prices for various bond issues.
Incorrect
The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued. While some government bonds and corporate bonds are traded on exchanges, the great majority of bond trading in the secondary market is made in the dealer, or over-the-counter, market. Dealers post bid (purchase) prices and ask or offer (selling) prices for various bond issues.
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Question 29 of 30
29. Question
Which of the following terms refers to a process by which financial assets (e.g., mortgages, accounts receivable, or automobile loans) are purchased by an entity that then issues securities supported by the cash flows from those financial assets?
Correct
The process by which financial assets (e.g., mortgages, accounts receivable, or automobile loans) are purchased by an entity that then issues securities supported by the cash flows from those financial assets is referred to as securitization. Securitization offers opportunities for investors and frees up capital for originators, both of which promote liquidity in the marketplace.
Incorrect
The process by which financial assets (e.g., mortgages, accounts receivable, or automobile loans) are purchased by an entity that then issues securities supported by the cash flows from those financial assets is referred to as securitization. Securitization offers opportunities for investors and frees up capital for originators, both of which promote liquidity in the marketplace.
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Question 30 of 30
30. Question
Securitization is the procedure where an issuer designs a marketable financial instrument by merging or pooling various financial assets into one group. The issuer then sells this group of repackaged assets to investors. Which of the following are primary benefits of the securitization of financial assets?
I. Increase in the liquidity of the underlying financial assets.
II. Increase in funding costs for firms selling the financial assets to the securitizing entity.
III. Decrease in the liquidity of the underlying financial assets.
IV. Reduction in funding costs for firms selling the financial assets to the securitizing entity.Correct
Securitization can provide a couple of benefits. The primary benefits of the securitization of financial assets are:
– Reduction in funding costs for firms selling the financial assets to the securitizing entity.
– Increase in the liquidity of the underlying financial assets.Incorrect
Securitization can provide a couple of benefits. The primary benefits of the securitization of financial assets are:
– Reduction in funding costs for firms selling the financial assets to the securitizing entity.
– Increase in the liquidity of the underlying financial assets.