More FI Q's

A note is quoted at 97-17 and has a par value of $100,000. Which of the following is its quoted price? a.) 97,170 b.) 97,351.25 c.) 100,000 d.) 975,312.5 Which of the following munis bonds typically has the greater risk and is issued with higher yields? a.) revenue bonds b.) appropiation backed obligations c.) limited tax GO bonds d.) unlimited GO bonds A corp issuing asset-backed securities can often improve the credit rating of the securities to aboe tht of the issuing company by transferring the assets to a(n): a.) asset trust b.) special purpose vechile c.) bond insurer d.) fiduciary account

  1. 100,000*(0.97 + 0.01*17/32) = 97,531.25 (I assume you typed in B incorrectly) 2) A) revenue bonds - because repayment of the bond is based on the ability of the financed project to generate revenue 3) B) Special purpose vehicle

B, A, B I’m getting 97,531.25 as the answer for the first one though…did u make a typo or am i just being dumb?

B, A, B

typ guys sorry, and you are all right, nice job

I got the same: B, A and B

B A B, as well.

D (assumed, the fv = 1 mil) B B

It’s B A B

getterdone Wrote: ------------------------------------------------------- > It’s > > B > > A > > B Why is the second question A? why isn’t it B. in appropriation, the state is unsure if itll be able to appropirate or not hence greater risk. where as revenue of a project will come.

because appropiation backed obligation are a type of GO. And GO’s are less risky than revenue bonds. Revenue bonds contain more risk because of the risk that the project will not generate revenue, therefore not pay principal or interest

What is an appropiation backed obligation? Also for number 3, can someone explain what a.) asset trust b.) special purpose vechile c.) bond insurer d.) fiduciary account all mean? thanks

appropiation backed bonds are also called moral obligation bonds because even the states that the bond was issued does not legally back the bonds, they have a moral obligation to do so. no idea what any of those others mean but a special purpose vechile is a way for a company issuing debt to transfer the asset to a serperate legal entity. The reasoning for this is that creditors of the original company won’t have a lien on these new bonds. Therefore a company can offer the new bonds at lower yields (lower cost)

<> Enron did this

i wonder what the yield spread is on morality

its like a risk return tradeoff because the less moral you are represents a cost (being put in jail) your required price for being less moral will be higher than your price if you were moral. Greed is a bad bad thing

Bond insurers back muni bonds…FSA, MBIA, etc. If a municipality fails, the insurer steps in. There was/is a big mess going on b/c they invested in CDOs, etc, and now supposedly don’t have the cash to cover issues that they insured. At one point, uninsured bonds of the same municipality were trading richer than insured bonds.