Fixed Income Securities & Markets Flashcards
7 cards from real IAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fixed Income Securities & Markets flashcards as text
What is the lowest rating considered investment grade by Standard & Poor's?
Answer: BBB-
S&P ratings of BBB- and above are investment grade; BB+ and below are speculative.
An inverted yield curve occurs when:
Answer: Short-term rates exceed long-term rates
An inverted curve has higher short-term yields than long-term yields and often signals a possible recession.
In a corporate liquidation, which security holder is paid first?
Answer: Secured bondholders
Secured creditors have claims on specific assets and are paid before unsecured debt and equity.
A $1,000 convertible bond converts at $40 per share. If the stock trades at $44, what is the bond's parity price?
Answer: $1,100
The bond converts into 25 shares, and 25 multiplied by $44 equals $1,100.
Which bond eliminates reinvestment risk if held to maturity?
Answer: Zero-coupon bond
Zero-coupon bonds pay no periodic interest, so there are no cash flows to reinvest before maturity.
How does a sinking fund provision generally affect a bond issue?
Answer: Reduces default risk by retiring bonds over time
The issuer sets aside money to retire debt gradually, which improves creditworthiness.
Which act requires a corporate bond issue to have a trust indenture and an independent trustee?
Answer: Trust Indenture Act of 1939
The Trust Indenture Act of 1939 requires an indenture and trustee for registered corporate debt offerings; municipal and government bonds are exempt.
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