IAR Fixed Income Securities & Markets 5

Question 1

What is the lowest rating considered investment grade by Standard & Poor's?

Accepted Answer

BBB-

Answer

S&P ratings of BBB- and above are investment grade; BB+ and below are speculative.

Question 2

An inverted yield curve occurs when:

Accepted Answer

Short-term rates exceed long-term rates

Answer

An inverted curve has higher short-term yields than long-term yields and often signals a possible recession.

Question 3

In a corporate liquidation, which security holder is paid first?

Accepted Answer

Secured bondholders

Answer

Secured creditors have claims on specific assets and are paid before unsecured debt and equity.

Question 4

A $1,000 convertible bond converts at $40 per share. If the stock trades at $44, what is the bond's parity price?

Accepted Answer

$1,100

Answer

The bond converts into 25 shares, and 25 multiplied by $44 equals $1,100.

Question 5

Which bond eliminates reinvestment risk if held to maturity?

Accepted Answer

Zero-coupon bond

Answer

Zero-coupon bonds pay no periodic interest, so there are no cash flows to reinvest before maturity.

IAR - Investment Advisory Representative Certification Practice Test