Fixed Income - Fixed Income Section 1

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1. Which of the following statements is the most accurate description of nonsovereign and quasi-government bonds?

  • Option : C
  • Explanation : Bonds issued by local government authorities are called non-sovereign bonds. Bonds issued by agencies that are owned or sponsored by governments are called quasi-government bonds. Additionally, bonds issued by supranational organizations are called supranational bonds. Bonds issued by national governments are called sovereign bonds. Bonds issued by companies are called corporate bonds.
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4. A bond with a par value of $10,000 is currently quoted at 102. What is the current market price of the bond? Is it trading at a discount or a premium to its par value?

  • Option : C
  • Explanation : A bond quoted at 102 reflects a premium of 2% over its par value. This results in current market price of $10,200. Since the market price is greater than the par value, the bond is trading at a premium.
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5. An organization issued bonds of par value $1,000 and a coupon rate of 5%. The coupons are paid quarterly. The periodic interest payment is:

  • Option : C
  • Explanation : Coupon rate of 5% paid quarterly means 5/4 = 1.25% of par is paid every quarter. On a face value of $1,000, this results in a periodic interest payment of $12.5. This amount is paid every quarter i.e. four times a year.
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