Econ 102 - Fixed Income / Bond

A fixed maturity, fixed coupon corporate bond is closing to its maturity date. However, given a scenario of unexpected soaring (increasing) interest rate environment due to hawkish US Fed, assuming the credit profile of the issuer remains unchanged (remains investment grade), which of the following statement is most appropriate?

• The bond price dropping drastically and never come back to par even on the maturity date.

• The bond price could be negatively impacted temporarily but will come back to par on maturity date.

• The bond price will increase much above par and come back to par on maturity date.

• The bond coupon will be adjusted lower.

Which of the following bond price should fluctuate the "least" given 1 percentage change in interest rate environment?

• Fixed maturity 5% fixed coupon bond with 3 years to maturity

• Fixed maturity 5% fixed coupon bond with 10 years to maturity

• Perpetual bond with 5% fixed coupon (non-adjusted after called date) bond with 5 years to callable date.

• Perpetual bond with 5% fixed to variable coupon with 10 years to callable date.

Tier 1 subordinated corporate bond is higher ranking than tier 2 subordinated corporate bond, given the same issuer. Is this statement correct?

• Yes

• No

When the earnings growth of the issuer deteriorate and turn to losses, assuming all things remain constant, which of the following is more appropriate?

• The capital of the issuer improves.

• The capital of the issuer decrease.

• The issuer is likely to spend more capital on acquiring assets oversea.

• The perpetual callable bond price issued by the issuer should be on the uptrend.

Given the increasing interest rate environment, which of the following is more appropriate in regards to a Tier 1 perpetual bond with cumulative coupon clause and fixed coupon (non-adjusted to variable after call date)?

• The chance of the bond being called increase.

• The chance of the bond being called decrease.

• The chance of the bond coupon being deferred decrease.

• The bond price should be positively impacted.

Which of the following bond issuance is trading at the highest yield, assuming the issuer is the same?

• Tier 2, Perpetual callable in 10 year, with cumulative coupon.

• Tier 2, Perpetual callable in 10 years, with non-cumulative coupon.

• Tier 1, Perpetual callable in 10 years, with cumulative coupon.

• Tier 1, Perpetual callable in 10 years, with non-cumulative coupon.

When a 5-year fixed maturity bond yield to maturity of the corporate bond is higher than the coupon, the bond price is...

• trading below par.

• trading above par.

• trading at par.

When a yield to call (YTC) of a callable bond with fixed maturity is much higher than the coupon of the bond, assuming credit profile remains at investment grade, which of the following statement is true?

• The bond price is increasing and traded above par.

• The potential risk of the bond not being called is increasing.

• The bond is for sure is going to go default.

• The interest rate environment is decreasing.

A USD-denominated 5-year to maturity corporate bond is trading at YTM of 6.5% p.a, while a 5-year US government bond (UST) YTM is 1.5% p.a, which of the following statement is correct?

• The corporate bond is trading at lower risk than the UST.

• The corporate bond is carrying credit risk which is reflected in 500 basis points (bps) credit spread.

• The UST is carrying similar risk as the corporate bond.

• The corporate bond is giving investor yield pick up of 5% above UST without additional risk.

When the US fed is being dovish, what could that mean to the UST yield?

• UST yield likely to trend higher.

• UST yield likely to trend lower.

• UST yield is not correlated with central banks monetary policies.