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Study Session 15: Fixed Income: Basic Concepts

Deferred coupon bonds

  1. Is their a difference between deferred interest bond and deferred coupon bond?

  2. If the interest rate of floating-rate bonds changes daily, how are the coupon payments calculated and how often they are paid?

  3. Can the embedded option of callable bonds or putable bonds be exercised if the interest rates change between call dates?

Nominal vs Z-spread

Hi,

I am not able to understand the difference between nominal and zero-volatility spread.

I feel these numbers are just the same.

Theory says that they are the same when the yield curve is flat. In my opinion they are the same also in case the curve is not flat. In fact I tried many examples of different yields (upward sloping for instance) and counted by hand the nominal and z-spread and I always get the same or very similar number (could be from numerical approximations).

Fixed Income - Yield Curve Question

Hey everyone! First time posting here and I need some help with a  QBank question:

QBank: Generally speaking, an upward-sloping yield curve can be expected when:

Answer: the supply of long-term funds falls short of demand and investors begin to show a preference for more liquid/less risky short-term securities.

As I understand it, more preference for more liquid/less risky short-term securities can be expected to drive up long-term rates as the liquidity premium rises. 

Schweser Practice Exam - Exam 3 Afternoon

Hi guys,

I got a question here relating to a practice q… i think they have something wrong here:

Debt covenants to protect bold holders are least likely to:

a) restrict issuance of new debt

b) require sinking fund redemptions

c) prohibit bond repurchases at premium to par

The answer they have listed here is C.. I’ve gone with A:

EAR vs EAY?

what’s the difference between effective annual yield and effective annual rate?

call vs refund

What’s the difference between refunding and call?

How can a bond be nonrefundable but callable?

Help with Elan Q (Annuity PV)

Hi Guys,

Can you help me out with a problem I have?

Q: An annuity pays 12k every year for 5 years with the first payment at the end of Year 4. Given a 13% discount rate, the PV is?

a) 42,207

b) 29,251

c) 28,334


1st step: Calc PV at beginning of year 4: -> 42,207

2nd step: FV 42,207, PMT 0, I/Y 13, N 4 -> 25,886

Elan uses N=3, I dont see why?

Please help me out here!