3.4 Capital Market Securities Review - IDC3O

What defines a capital market security?

• Short-term investments under one year
• Long-term securities with maturity greater than one year
• Investments with zero risk
• Bonds issued only by governments

Which characteristic distinguishes fixed-income securities?

• Infinite maturity dates
• Unspecified payment schedules
• Predetermined payment dates and amounts
• Completely variable interest rates

What makes callable bonds unique for investors?

• Guaranteed fixed returns
• Issuer can redeem bonds before maturity
• Permanent interest rate
• No potential for early redemption

In a convertible bond, what privilege does the bondholder receive?

• Guaranteed stock conversion
• Option to convert to common/preferred shares
• Mandatory stock exchange
• Immediate stock ownership

What defines a strip bond's unique characteristic?

• Regular coupon payments
• High initial purchase price
• Sold at a discount with no interim interest
• Guaranteed annual returns

What distinguishes preferred stock from common stock?

• Voting rights
• Variable dividend payments
• Fixed dividend payments
• Unlimited growth potential

What is the primary function of a bond rating service?

• Determining bond prices
• Expressing probability of issuer default
• Setting interest rates
• Guaranteeing bond returns

What does the yield curve represent?

• Stock market performance
• Relationship between maturity and yield
• Corporate earnings
• Inflation rates

What risk does a floating rate bond mitigate?

• Inflation risk
• Default risk
• Volatile interest rate environments
• Liquidity risk

What determines a bond's current yield?

• Market speculation
• Annual interest payment divided by purchase price
• Government regulations
• Total corporate earnings