Quiz-summary
0 of 30 questions completed
Questions:
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12
- 13
- 14
- 15
- 16
- 17
- 18
- 19
- 20
- 21
- 22
- 23
- 24
- 25
- 26
- 27
- 28
- 29
- 30
Information
Derivatives
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 30 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
- Not categorized 0%
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12
- 13
- 14
- 15
- 16
- 17
- 18
- 19
- 20
- 21
- 22
- 23
- 24
- 25
- 26
- 27
- 28
- 29
- 30
- Answered
- Review
-
Question 1 of 30
1. Question
A bond is an instrument of indebtedness of the bond issuer to the holders. There are various types of bonds. Which of the following statements best describes the type of bonds – convertible bonds?
Correct
Convertible bonds are bonds issued by companies that give the bondholder the option to buy the company’s stock at a predetermined price. Convertible bonds are bonds with stock options. The investor typically gets a lower rate of return but can trade the bond for stock rather than be repaid the cost of the bond. The holder of the bonds can buy stocks at a predetermined price.
Incorrect
Convertible bonds are bonds issued by companies that give the bondholder the option to buy the company’s stock at a predetermined price. Convertible bonds are bonds with stock options. The investor typically gets a lower rate of return but can trade the bond for stock rather than be repaid the cost of the bond. The holder of the bonds can buy stocks at a predetermined price.
-
Question 2 of 30
2. Question
The time a trader spends on a trading desk at a Wall Street bank gives him or her the time to develop not just market analysis skills but also the discipline required to be a successful trader under all market conditions. Which of the following are attributes of a successful trader?
I. Ability to size his trades correctly.
II. Freezes during moments of market panic.
III. Ability to pick stop loss and take profit levels.
IV. Lets greed and fear make his trading decisions.Correct
The successful trader learns how to size his trades correctly, how to pick stop loss and take profit levels, and is nimble. He does not let greed and fear make his trading decisions, and he does not freeze during moments of market panic. He never ‘‘bets the farm’’ on any one single trade and is constantly challenging and reexamining his own convictions. These trading disciplines cannot be imbibed in a classroom setting; they are only mastered in the heat of battle.
Incorrect
The successful trader learns how to size his trades correctly, how to pick stop loss and take profit levels, and is nimble. He does not let greed and fear make his trading decisions, and he does not freeze during moments of market panic. He never ‘‘bets the farm’’ on any one single trade and is constantly challenging and reexamining his own convictions. These trading disciplines cannot be imbibed in a classroom setting; they are only mastered in the heat of battle.
-
Question 3 of 30
3. Question
Inflation-Indexed Bond (IIB) is a bond issued by the Sovereign, which provides the investor with a constant return irrespective of the level of inflation in the economy. Which of the following are structures of inflation-indexed bonds?
I. Interest-indexed bonds
II. Indexed local bonds
III. Capital-indexed bonds
IV. Indexed-annuity bondsCorrect
The main objective of Inflation-Indexed Bonds is to provide a hedge and to safeguard the investor against macroeconomic risks in an economy. The different structures of inflation-indexed bonds include the following:
– Indexed-annuity bonds: Fully amortizing bonds with the periodic payments directly adjusted for inflation or deflation.
– Indexed zero-coupon bonds: The payment at maturity is adjusted for inflation.
– Interest-indexed bonds: The coupon rate is adjusted for inflation while the principal value remains unchanged.
– Capital-indexed bonds. This is the most common structure. An example is U.S. Treasury Inflation Protected Securities (TIPS). The coupon rate remains constant, and the principal value of the bonds is increased by the rate of inflation (or decreased by deflation).Incorrect
The main objective of Inflation-Indexed Bonds is to provide a hedge and to safeguard the investor against macroeconomic risks in an economy. The different structures of inflation-indexed bonds include the following:
– Indexed-annuity bonds: Fully amortizing bonds with the periodic payments directly adjusted for inflation or deflation.
– Indexed zero-coupon bonds: The payment at maturity is adjusted for inflation.
– Interest-indexed bonds: The coupon rate is adjusted for inflation while the principal value remains unchanged.
– Capital-indexed bonds. This is the most common structure. An example is U.S. Treasury Inflation Protected Securities (TIPS). The coupon rate remains constant, and the principal value of the bonds is increased by the rate of inflation (or decreased by deflation). -
Question 4 of 30
4. Question
In the flow of capital in the hedge fund industry, the first layer comprises the end investor. Which of the following are the people with the money who have made the decision to invest in hedge funds?
I. High net worth individuals
II. Network marketers
III. Endowments
IV. The pension fundsCorrect
The pension funds, high net worth individuals, banks, and endowments are the people with the money who have made the decision to invest in hedge funds. Sometimes these investors will invest directly in the hedge funds, but most of the time they will outsource the due diligence and hedge fund picking activity to an expert, like a fund of funds.
Incorrect
The pension funds, high net worth individuals, banks, and endowments are the people with the money who have made the decision to invest in hedge funds. Sometimes these investors will invest directly in the hedge funds, but most of the time they will outsource the due diligence and hedge fund picking activity to an expert, like a fund of funds.
-
Question 5 of 30
5. Question
The middlemen’s main responsibility has been to understand the hedge fund strategies and make the hedge funds less opaque to the end investors. Which of the following is not one of the layers of middlemen?
Correct
The layers of middlemen are in the form of consultants, advisors, fund of funds, and third-party marketers. These layers of middlemen have made fortunes trying to match investors with the appropriate hedge fund managers.
Incorrect
The layers of middlemen are in the form of consultants, advisors, fund of funds, and third-party marketers. These layers of middlemen have made fortunes trying to match investors with the appropriate hedge fund managers.
-
Question 6 of 30
6. Question
An investment always concerns the outlay of some assets today (time, money, effort, etc.) in hopes of a greater payoff in the future than what was originally put in. Which of the following investment options is the most complex?
Correct
Analyzing, buying, and selling stocks or even bonds and money market funds is a transparent, cheap, and easy process but investing in hedge funds is a lot more complex. Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors. These funds may be managed aggressively or make use of derivatives and leverage to generate higher returns.
Incorrect
Analyzing, buying, and selling stocks or even bonds and money market funds is a transparent, cheap, and easy process but investing in hedge funds is a lot more complex. Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors. These funds may be managed aggressively or make use of derivatives and leverage to generate higher returns.
-
Question 7 of 30
7. Question
A fixed-rate bond is a bond that pays the same level of interest over its entire term. Which of the following is a source of returns from investing in a fixed-rate bond?
I. Money borrowed from financial institutions.
II. Coupon and principal payments.
III. Any capital gain or loss if the bond is sold prior to maturity.
IV. Interest earned on coupon payments that are reinvested over the investor’s holding period for the bond.Correct
Upon maturity of the bond, holders will receive back the initial principal amount in addition to the interest paid. There are three sources of returns from investing in a fixed-rate bond:
– Coupon and principal payments.
– Interest earned on coupon payments that are reinvested over the investor’s holding period for the bond.
– Any capital gain or loss if the bond is sold prior to maturity.Incorrect
Upon maturity of the bond, holders will receive back the initial principal amount in addition to the interest paid. There are three sources of returns from investing in a fixed-rate bond:
– Coupon and principal payments.
– Interest earned on coupon payments that are reinvested over the investor’s holding period for the bond.
– Any capital gain or loss if the bond is sold prior to maturity. -
Question 8 of 30
8. Question
Which of the following refers to the sensitivity of the value of a bond or portfolio to changes in the spot rate for a specific maturity, holding other spot rates constant?
Correct
A key rate duration, also known as a partial duration, refers to the sensitivity of the value of a bond or portfolio to changes in the spot rate for a specific maturity, holding other spot rates constant. A bond or portfolio will have a key rate duration for each maturity range on the spot rate curve.
Incorrect
A key rate duration, also known as a partial duration, refers to the sensitivity of the value of a bond or portfolio to changes in the spot rate for a specific maturity, holding other spot rates constant. A bond or portfolio will have a key rate duration for each maturity range on the spot rate curve.
-
Question 9 of 30
9. Question
Which of the following terms best refers to the risk associated with losses stemming from the failure of a borrower to make timely and full payments of interest or principal?
Correct
Credit risk refers to the risk associated with losses stemming from the failure of a borrower to make timely and full payments of interest or principal. Credit risk has two components: default risk and loss severity.
Incorrect
Credit risk refers to the risk associated with losses stemming from the failure of a borrower to make timely and full payments of interest or principal. Credit risk has two components: default risk and loss severity.
-
Question 10 of 30
10. Question
Which of the following terms refers to the practice by rating agencies of assigning different ratings to bonds of the same issuer?
Correct
Notching refers to the practice by rating agencies of assigning different ratings to bonds of the same issuer. Notching is based on several factors, including the seniority of the bonds and its impact on potential loss severity.
Incorrect
Notching refers to the practice by rating agencies of assigning different ratings to bonds of the same issuer. Notching is based on several factors, including the seniority of the bonds and its impact on potential loss severity.
-
Question 11 of 30
11. Question
The most common type of fixed-income security is a bond that promises to make a series of interest payments in fixed amounts and to repay the principal amount at maturity. Which of the following should the features of a fixed-income security include specification of?
I. The bond’s competitors.
II. The maturity date of the bond.
III. The par value.
IV. The issuer of the bond.Correct
Bonds are the most common type of fixed-income security, but others include CDs, money markets, and preferred shares. 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
Bonds are the most common type of fixed-income security, but others include CDs, money markets, and preferred shares. 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 12 of 30
12. Question
The maturity date of a bond is the date on which the principal is to be repaid. Which of the following refers to the time remaining until maturity once a bond has been issued?
I. The expiration date of the bond.
II. The maturity of the bond.
III. The tenor of the bond.
IV. The term to maturity 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.
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.
-
Question 13 of 30
13. Question
The maturity date of a bond is the date on which the principal is to be repaid. Which of the following terms refers to bonds that have no maturity date?
Correct
Perpetual bonds refer to bonds that have no maturity date. Perpetual bonds make periodic interest payments but do not promise to repay the principal amount.
Incorrect
Perpetual bonds refer to bonds that have no maturity date. Perpetual bonds make periodic interest payments but do not promise to repay the principal amount.
-
Question 14 of 30
14. Question
The maturity date of a bond is the date on which the principal is to be repaid. Once a bond has been issued, the time remaining until maturity is referred to as the term to maturity or tenor of a bond. Which of the following terms refers to the principal amount that will be repaid at maturity?
I. The par value of the bond.
II. The maturity value of the bond.
III. The critical value of the bond.
IV. The face value of the 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. Bonds can have a par value of any amount, and their prices are quoted as a percentage of par. A bond with a par value of $1,000 quoted at 98 is selling for $980.
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. Bonds can have a par value of any amount, and their prices are quoted as a percentage of par. A bond with a par value of $1,000 quoted at 98 is selling for $980.
-
Question 15 of 30
15. Question
The par value of a bond is the principal amount that will be repaid at maturity. Which of the following is said when a bond is selling for more than its par value?
Correct
A bond that is selling for more than its par value is said to be trading at a premium to par. A bond that is selling for more than its par value costs more than the face amount on the bond. A bond might trade at a premium to par because its interest rate is higher than current rates in the market.
Incorrect
A bond that is selling for more than its par value is said to be trading at a premium to par. A bond that is selling for more than its par value costs more than the face amount on the bond. A bond might trade at a premium to par because its interest rate is higher than current rates in the market.
-
Question 16 of 30
16. Question
The par value is also referred to as the face value, maturity value, redemption value, or principal value of a bond. Which of the following is said when a bond is selling for less than its par value?
Correct
A bond that is selling at less than its par value is said to be trading at a discount to par. A distressed bond trading at a significant discount to par can effectively raise its yield to attractive levels. Bonds selling at a discount to par may indicate the belief that the underlying company may default on their debt obligations.
Incorrect
A bond that is selling at less than its par value is said to be trading at a discount to par. A distressed bond trading at a significant discount to par can effectively raise its yield to attractive levels. Bonds selling at a discount to par may indicate the belief that the underlying company may default on their debt obligations.
-
Question 17 of 30
17. Question
The par value of a bond is the principal amount that will be repaid at maturity. Which of the following is said when a bond is selling for exactly its par value?
Correct
A bond that is selling for exactly its par value is said to be trading at par. A bond that was trading at par would be quoted at 100, meaning that it traded at 100% of its par value. A bond that trades at par has a yield equal to its coupon. Investors expect a return equal to the coupon for the risk of lending to the bond issuer.
Incorrect
A bond that is selling for exactly its par value is said to be trading at par. A bond that was trading at par would be quoted at 100, meaning that it traded at 100% of its par value. A bond that trades at par has a yield equal to its coupon. Investors expect a return equal to the coupon for the risk of lending to the bond issuer.
-
Question 18 of 30
18. Question
Bonds can have a par value of any amount, and their prices are quoted as a percentage of par. Which of the following refers to the annual percentage of a bond’s par value that will be paid to bondholders?
Correct
The coupon rate on a bond is the annual percentage of its par value that will be paid to bondholders. Some bonds make coupon interest payments annually, while others make semiannual, quarterly, or monthly payments. A $1,000 par value semiannual-pay bond with a 5% coupon would pay 2.5% of $1,000, or $25, every six months.
Incorrect
The coupon rate on a bond is the annual percentage of its par value that will be paid to bondholders. Some bonds make coupon interest payments annually, while others make semiannual, quarterly, or monthly payments. A $1,000 par value semiannual-pay bond with a 5% coupon would pay 2.5% of $1,000, or $25, every six months.
-
Question 19 of 30
19. Question
A bond’s coupon rate is the annual percentage of its par value that will be paid to bondholders. Which of the following terms refers to a bond with a fixed coupon rate?
I. A pure discount bond
II. A zero-coupon bond
III. A conventional bond
IV. A plain vanilla bondCorrect
A bond with a fixed coupon rate is called a plain vanilla bond or a conventional bond. A plain vanilla bond is the most basic type of bond, wherein when an investor buys a bond, there is a fixed coupon payment at pre-determined fixed intervals, and the maturity of the bond is also pre-determined. Plain vanilla bonds are easier to trade, and they have tighter spreads.
Incorrect
A bond with a fixed coupon rate is called a plain vanilla bond or a conventional bond. A plain vanilla bond is the most basic type of bond, wherein when an investor buys a bond, there is a fixed coupon payment at pre-determined fixed intervals, and the maturity of the bond is also pre-determined. Plain vanilla bonds are easier to trade, and they have tighter spreads.
-
Question 20 of 30
20. Question
The coupon rate on a bond is the annual percentage of its par value that will be paid to bondholders. Bonds make coupon interest payments at different times and schedules. Which of the following terms refer to bonds that pay no interest prior to maturity?
I. Zero-coupon bond
II. Pure discount bonds
III. Dysfunctional bonds
IV. Traditional 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.
-
Question 21 of 30
21. Question
Bonds are units of corporate debt issued by companies and securitized as tradeable assets. Which of the following terms refers to the legal contract between the bond issuer (borrower) and bondholders (lenders)?
I. A trust deed
II. A currency contract
III. The bond indenture
IV. An affidavitCorrect
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. The indenture defines the obligations of and restrictions on the borrower and forms the basis for all future transactions between the bondholder and the issuer.
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. The indenture defines the obligations of and restrictions on the borrower and forms the basis for all future transactions between the bondholder and the issuer.
-
Question 22 of 30
22. Question
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. Which of the following terms refers to the provisions in the bond indenture?
Correct
The provisions in the bond indenture are known as covenants and include both negative covenants and affirmative covenants. Bond covenants are part of the legal documentation that makes up a bond, whether it is issued by a company or the government. They are usually intended to protect investors by providing some assurance on what the bond issuer will and won’t do over the life of the bond.
Incorrect
The provisions in the bond indenture are known as covenants and include both negative covenants and affirmative covenants. Bond covenants are part of the legal documentation that makes up a bond, whether it is issued by a company or the government. They are usually intended to protect investors by providing some assurance on what the bond issuer will and won’t do over the life of the bond.
-
Question 23 of 30
23. Question
The provisions in the bond indenture are known as covenants. Which of the following types of bond covenants include restrictions on asset sales, negative pledge of collateral, and restrictions on additional borrowings?
Correct
Negative covenants include restrictions on asset sales (the company can’t sell assets that have been pledged as collateral), negative pledge of collateral (the company can’t claim that the same assets back several debt issues simultaneously), and restrictions on additional borrowings (the company can’t borrow additional money unless certain financial conditions are met). Negative covenants serve to protect the interests of bondholders and prevent the issuing firm from taking actions that would increase the risk of default. At the same time, the covenants must not be so restrictive that they prevent the firm from taking advantage of opportunities that arise or responding appropriately to changing business circumstances.
Incorrect
Negative covenants include restrictions on asset sales (the company can’t sell assets that have been pledged as collateral), negative pledge of collateral (the company can’t claim that the same assets back several debt issues simultaneously), and restrictions on additional borrowings (the company can’t borrow additional money unless certain financial conditions are met). Negative covenants serve to protect the interests of bondholders and prevent the issuing firm from taking actions that would increase the risk of default. At the same time, the covenants must not be so restrictive that they prevent the firm from taking advantage of opportunities that arise or responding appropriately to changing business circumstances.
-
Question 24 of 30
24. Question
The provisions in the bond indenture are known as covenants. Which of the following types of bond covenants do not typically restrict the operating decisions of the issuer?
Correct
Affirmative covenants 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
Affirmative covenants 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.
-
Question 25 of 30
25. Question
Bonds are subject to different legal and regulatory requirements depending on where they are issued and traded. Which of the following refers to bonds that are issued by a firm domiciled in a country and also traded in that country’s currency?
I. Foreign bonds
II. Eurobonds
III. Domestic bonds
IV. International bondsCorrect
Bonds issued by a firm domiciled in a country and also traded in that country’s currency are referred to as domestic bonds. The market where the issuers domiciled within the country issue the bonds and where these bonds are traded is referred to as the domestic bond market.
Incorrect
Bonds issued by a firm domiciled in a country and also traded in that country’s currency are referred to as domestic bonds. The market where the issuers domiciled within the country issue the bonds and where these bonds are traded is referred to as the domestic bond market.
-
Question 26 of 30
26. Question
Bonds are subject to different legal and regulatory requirements depending on where they are issued and traded. Which of the following refers to bonds that are issued by a firm incorporated in a foreign country that trade on the national bond market of another country in that country’s currency?
I. Euro bonds
II. Local bonds
III. Domestic bonds
IV. Foreign bondsCorrect
Bonds issued by a firm incorporated in a foreign country that trade on the national bond market of another country in that country’s currency are referred to as foreign bonds. Examples include bonds issued by foreign firms that trade in China and are denominated in yuan, which are called panda bonds, and bonds issued by firms incorporated outside the United States that trade in the United States and are denominated in U.S. dollars, which are called Yankee bonds.
Incorrect
Bonds issued by a firm incorporated in a foreign country that trade on the national bond market of another country in that country’s currency are referred to as foreign bonds. Examples include bonds issued by foreign firms that trade in China and are denominated in yuan, which are called panda bonds, and bonds issued by firms incorporated outside the United States that trade in the United States and are denominated in U.S. dollars, which are called Yankee bonds.
-
Question 27 of 30
27. Question
Which of the following types of bonds are issued outside the jurisdiction of any one country and denominated in a currency different from the currency of the countries in which they are sold?
Correct
Eurobonds are issued outside the jurisdiction of any one country and denominated in a currency different from the currency of the countries in which they are sold. They are subject to less regulation than domestic bonds in most jurisdictions and were initially introduced to avoid U.S. regulations. Eurobonds should not be confused with bonds denominated in euros or thought to originate in Europe, although they can be both. Eurobonds got the “euro” name because they were first introduced in Europe, and most are still traded by firms in European capitals.
Incorrect
Eurobonds are issued outside the jurisdiction of any one country and denominated in a currency different from the currency of the countries in which they are sold. They are subject to less regulation than domestic bonds in most jurisdictions and were initially introduced to avoid U.S. regulations. Eurobonds should not be confused with bonds denominated in euros or thought to originate in Europe, although they can be both. Eurobonds got the “euro” name because they were first introduced in Europe, and most are still traded by firms in European capitals.
-
Question 28 of 30
28. Question
Some bonds pay periodic interest that depends on the current market rate of interest. Which of the following terms refers to such bonds that pay periodic interest that depends on a current market rate of interest?
I. Floaters
II. Variable-rate note
III. Reference rate notes
IV. Floating-rate notesCorrect
Some bonds pay periodic interest that depends on the current market rate of interest. These bonds are called floating-rate notes (FRN) or floaters. Floating rate notes or floaters can be issued by financial institutions, governments, and corporations in maturities of two-to-five years.
Incorrect
Some bonds pay periodic interest that depends on the current market rate of interest. These bonds are called floating-rate notes (FRN) or floaters. Floating rate notes or floaters can be issued by financial institutions, governments, and corporations in maturities of two-to-five years.
-
Question 29 of 30
29. Question
An index-linked bond has coupon payments and/or a principal value that is based on a commodity index, an equity index, or some other published index number. Which of the following are common types of index-linked bonds?
I. Deferred coupon bond
II. Inflation-linked bonds
III. Linkers
IV. Principal protected bondsCorrect
Inflation-linked bonds (also called linkers) are the most common type of index-linked bonds. Their payments are based on the change in an inflation index, such as the Consumer Price Index (CPI) in the United States. Indexed bonds that will not pay less than their original par value at maturity, even when the index has decreased, are termed principal protected bonds.
Incorrect
Inflation-linked bonds (also called linkers) are the most common type of index-linked bonds. Their payments are based on the change in an inflation index, such as the Consumer Price Index (CPI) in the United States. Indexed bonds that will not pay less than their original par value at maturity, even when the index has decreased, are termed principal protected bonds.
-
Question 30 of 30
30. Question
A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond’s issue date until it matures. With which of the following types of bonds do regular coupon payments not begin until a period of time after issuance?
I. Credit-linked coupon bond
II. Deferred coupon bond
III. Payment-in-kind (PIK) bond
IV. Split coupon bondCorrect
With a deferred coupon bond, also called a split coupon bond, regular coupon payments do not begin until a period of time after issuance. These are issued by firms that anticipate cash flows will increase in the future to allow them to make coupon interest payments. Deferred coupon bonds may be appropriate financing for a firm financing a large project that will not be completed and generating revenue for some period of time after bond issuance. Deferred coupon bonds may offer bondholders tax advantages in some jurisdictions.
Incorrect
With a deferred coupon bond, also called a split coupon bond, regular coupon payments do not begin until a period of time after issuance. These are issued by firms that anticipate cash flows will increase in the future to allow them to make coupon interest payments. Deferred coupon bonds may be appropriate financing for a firm financing a large project that will not be completed and generating revenue for some period of time after bond issuance. Deferred coupon bonds may offer bondholders tax advantages in some jurisdictions.