Corporate Bond Quiz

Tightening corporate bond yield spreads are most likely associated with:

• Issuers' deteriorating creditworthiness.

• periods of high demand for corporate bonds.

• broker-dealers' reduced ability and willingness to make markets.

In a repurchase agreement:

• only the lender of funds is exposed to credit risk.

• credit risk is eliminated by using highly rated sovereign bonds as collateral.

• the initial margin offers partial protection against changes in the market value of the collateral.

With respect to a bond with an embedded option, for parallel shifts in the benchmark yield curve, effective duration most likely indicates the same interest rate sensitivity as:

• key rate durations.

• modified duration.

• Macaulay duration.

In a securitization, a senior/subordinated structure is most likely a form of

• time tranching.

• credit tranching.

• prepayment risk management.

Modified duration is the most appropriate measure of interest rate risk for which of the following securities?

• Callable bond

• US Treasury bond

• Mortgage-backed bond

The percentage price change for a bond, given a change in its yield to maturity,is best estimated by:

• effective duration.

• modified duration.

• Macaulay duration.

An analyst gathers the following information about an annual-pay bond: Coupon rate = 6.0% YTM = 4.5% Macaulay duration = 10.0% If the yield to maturity decreases by 100 basis points, the expected percentage change inthe bond's price is closest to:

• 9.43%.

• 9.57%.

• 10.00%

Which of the following is most likely a negative covenant?

• The issuer must comply with all laws and regulations.

• The issuance of new debt must be Junior to existing bondholder debt.

• New debt obligations are treated the same as the borrower's other senior debt instruments.

An analyst gathers the following information about a 4% annual-payment bond with current yield-to-maturity of 4.0%: Annualized YTM ~ Bond Price 3.9% ~ 100.45 4.0% ~ 100.00 4.1% ~ 99.56 The bond's annualized Macaulay duration is closest to:

• 4.28.

• 4.45.

• 4.63.

An analyst gathers the following information about a company (in $ millions): Operating income = 120 Net income = 85 Interest expense = 15 Depreciation and amortization = 15 Interest coverage using EBIT is closest to:

• 7x

• 8x

• 9x