Fixed Income - Fixed Income Section 1
6. Which of the following is most likely an example of a sovereign bond? A bond issued by:
- Option : A
- Explanation : A sovereign bond is a bond issued by a national government, such as the U.S. government. A bond issued by a local government, such as the State of Minnesota, is a non-sovereign bond. A bond issued by the IMF is a supranational bond.
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- Option : A
- Explanation : Credit risk is the risk of loss resulting from the issuer failing to make full and timely payments of interest and/or repayments of principal.
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8. A capital market security most likely matures in:
- Option : C
- Explanation : The primary difference between a money market security and a capital market security is the maturity at issuance. Money market securities mature in one year or less, whereas capital market securities mature in more than one year.
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9. A bond is trading at a premium, if the bond's price is:
- Option : C
- Explanation : If a bond’s price is higher than its par value, the bond is trading at a premium.
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- Option : A
- Explanation : The annual coupon payment is 10% * 1, 000 = $100. The coupon payments are paid semi − annually, so50 is paid twice a year.
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