CSC Fixed-Income Securities Analysis 3

Question 1

Which of the following best describes a callable bond?

Accepted Answer

A bond that can be redeemed by the issuer before maturity at a set price

Answer

A callable bond gives the issuer the right to redeem the bond before its stated maturity date, typically at a premium to par.

Question 2

What happens to a bond's price when prevailing interest rates fall?

Accepted Answer

The bond's price rises

Answer

Bond prices and interest rates move inversely; when rates fall, existing bonds with higher coupons become more valuable, so prices rise.

Question 3

Real Return Bonds (RRBs) issued by the Government of Canada protect investors against which specific risk?

Accepted Answer

Inflation risk

Answer

RRBs adjust both principal and coupon payments based on the Consumer Price Index (CPI), protecting investors from purchasing power erosion due to inflation.

Question 4

A bond with a face value of $1,000 pays a 6% annual coupon. If the bond's current price is $1,060, what is its current yield?

Accepted Answer

5.66%

Answer

Current yield = annual coupon / current price = $60 / $1,060 = 5.66%.

Question 5

Which rating category marks the dividing line between investment-grade and non-investment-grade bonds under standard rating agency scales?

Accepted Answer

BBB-/Baa3

Answer

BBB- (S&P/Fitch) or Baa3 (Moody's) is the lowest investment-grade rating; anything below is considered non-investment grade (high-yield or junk).

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Fixed-Income Securities Analysis 3