chapter 7-9 results

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----- ot fa @ Canadian Securities Institute Moody's Analytics Training & Certification Services Check: Section 3 Quiz Reports Overall Results Score: Number o Attempt Questions Correct Your Score 43% 1 30 13 43% You did not pass the test.
Score: 43% Chapter Results Chapter Chapter 7 Types of Investment Products and How They Are Traded Chapter 8 Constructing Investment Portfolios Chapter 9 Understanding Financial Statements Questions 10 10 10 Number Correct Your Score 5 50% 3 30% 5 50%
Question Results 1. Bond quote for Trillium Corp: Coupon 5.51%; Maturity Date: June 21, 2033; Bid $100.52; Yield 5.27%. Based on this newspaper quote, which correctly identifies where the bond is currently trading? The correct answer is: A At a premium. You chose: B. At a discount. C At its face value. D At par value. Feedback: Given the yield and the coupon rate, the following relationships hold: « |[f the yield is greater than the coupon rate, the bond is trading at a discount. « If the yield is equal to the coupon rate, the bond is trading at par. « |f the yield is lower than the coupon rate, the bond is trading at a premium. Reference | Chapter 7 Types of Investment Products and How They Are Traded 2. Which statement regarding Treasury Bills is correct? They can only be purchased between April and October each year. You chose: B. They pay interest semi-annually to treasury bill holders. C. They are issued with a three-year term and a fixed interest rate. The correct answer is: D. They are issued through a competitive bidding process at a discount from par. Feedback: Treasury bills do not pay interest. Instead, they are sold at a discount (below par) and mature at 100. The difference between the issue price and par at maturity represents the return on the investment, instead of interest. Under the Income Tax Act, this return is taxable as income, not as a capital gain. Every two weeks, Treasury bills are sold at auction by the Minister of Finance through the Bank of Canada. These bills have original terms to maturity of approximately three months, six months and one year. Reference | Chapter 7 Types of Investment Products and How They Are Traded 3. In the municipal securities market, it is common for issuers to employ what types of bonds? Good choice! Serial bonds. Convertible bonds. Callable bonds. oo w > Zero-coupon bonds. Feedback: Today, the instrument that most municipalities use to raise capital from market sources is the instalment debenture or serial bond. Part of the bond matures in each year during the term of the bond. Reference | Chapter 7 Types of Investment Products and How They Are Traded 4. What type of bonds are backed by an issuer’s specific assets as collateral in case of default? Callable bonds. Convertible bonds. Serial bonds. oo w > Good choice! Secured bonds. Feedback: First, corporate bonds have much more default risk than government bonds. Credit rating agencies use scales to indicate the quality of corporate bonds, with AAA (or A++) bonds having the best protection against default. Many corporate bonds include a promise to turn over an asset to the bondholders for liquidation if the corporation fails to make its coupon payments or pay the par value at maturity. These bonds are said to be secured bonds by a pledge of collateral (the asset) in the case of default (the failure to pay). Reference | Chapter 7 Types of Investment Products and How They Are Traded
5. Carey with his retirement account invested $20,000 in each of the following Guaranteed Investment Certificates (GICs): one-year GIC at 2.05%; two-year GIC at 2.10%; three-year GIC at 2.50%; four-year GIC at 2.50% and a five-year GIC at 2.85%. His strategy is that from then on, whenever a GIC matures he will invest in a new five-year term GIC. Which type of GICs is Carey using with his retirement portfolio? Interest-linked GICs. Good choice! Laddered GICs. Instalment GICs. Index-linked GICs. oo w > Feedback: Laddered GICs: The investment is evenly divided into multiple term lengths (for example, a five-year $5,000 GIC can be divided into one-, two-, three-, four- and five-year terms of $1,000 each). As each portion matures, it can be reinvested or redeemed. This diversification of terms reduces interest rate risk. Reference | Chapter 7 Types of Investment Products and How They Are Traded 6. Which statement correctly identifies the relationship between bonds and interest rates? Bond prices and coupon rates fluctuate daily. B. Bond yields and coupon rates fluctuate daily. The correct answer is: C. Bond yields and bond prices fluctuate daily. You chose: D. If the yield is lower than the coupon rate, the bond is trading at a discount. Feedback: While the coupon rate, along with the face value and maturity date, do not change, the price and yield of a bond fluctuates from day to day. Reference | Chapter 7 Types of Investment Products and How They Are Traded 7. What is the approximate current yield of a 10-year bond with an annual coupon of $4.10 and a bond price of $95.75? A. 8.56%. Good choice! B. 4.28%. C. 2.14%. D. 4.1%. Feedback: We can calculate the current yield of any investment, whether it is a bond or a stock, using the following formula: Current Yield = Annual Cash Flow x100 Current Market Price In this case, the annual cash flow is the coupon paid by the bond. As previously discussed, coupons are fixed for the life of the bond so the annual cash flow is simply the total coupon paid. Note that current yield looks only at cash flows and the current market price of the investment, not at the amount that was originally invested. Reference | Chapter 7 Types of Investment Products and How They Are Traded 8. Which graph plots interest rates against time to maturity for investors? Yield equivalence. The correct answer is: Yield curve. Yield spread premium. oo You chose: Yield to maturity. Feedback: The yield curve shows the relationship between interest rates and the time to maturity for a given borrower. Reference | Chapter 7 Types of Investment Products and How They Are Traded
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