Financial Markets Quiz 2-1

A bond has a coupon interest rate set as 1-year LIBOR + 1% and coupon rate is paid annually. This bond is termed as a

• Zero coupon bond.

• Fixed coupon bond.

• Floater.

• LIBOR bond.

The coupon rate of a bond is decided as 6 months LIBOR + 1.25%. It has a floor rate of 4% and a Cap rate of 8%. The relevant LIBOR for the current coupon payments comes to 2%. The coupon rate for the current coupon period comes to.

• 3.25%

• 8%

• 2%

• 4%

Floor rate of a variable rate bonds is

• The maximum coupon rate.

• The minimum coupon rate.

• Minimum benchmark rate.

• Maximum benchmark rate.

Cap rate of a variable rate bond is

• The maximum coupon rate.

• The minimum coupon rate.

• Minimum benchmark rate.

• Maximum benchmark rate.

Coupon rate of a floating rate bond is defined as 6 months LIBOR + 1.25%. It has a floor rate of 2% and a Cap rate of 5%. The LIBOR for the current coupon period comes to 4.2%. The applicable coupon rate for the current coupon period is,

• 5.45%

• 5%

• 2%

• 3.25%

Which of the following is incorrect with respect to a variable rate bond.

• A floor rate is to safeguard the investor from declining interest rates.

• A floor rate is to safeguard the issuer of a bond from rising interest rates.

• A floor is to safeguard the investor from rising interest rates.

• A floor is to safeguard the issuer from the declining interest rates.

A cap rate and a floor rate are applicable for a

• Zero coupon bond.

• Fixed coupon bond.

• Bill

• Floating rate bond.

If you expect the interest rates to increase in the near future and remain at a higher level for another 5 years period, what action will you be taking as a potential borrower for a 5 years period for a new capex project.

• Post phoned borrowing until the interest rates increase in the near future.

• Borrow now on a floating rate bond.

• Borrow now on a fixed rate bond.

• Borrow now on a 6 months T bill and then rollover the borrowing for every 6 months.

Which of the following will represent equity capital of the corporate.

• Retained earnings.

• Repo market borrowings.

• Trade creditors

• Debentures

Which of the following is not a part of the debt funding for a corporate.

• Mortgage pass-through securities

• Zero coupon bond.

• Preference shares

• A commercial paper issued.