Investment fund mid term 2026

If all other features are the same, which security is generally better protected because it is backed by pledged assets?

Bond

A bond has a face value of $1,000 and pays an 8% annual coupon quarterly. What is each coupon payment?

20$

A bond is quoted bid 96.24 and offer 96.55. How much would an investor pay to buy $1,000 face value?

$965.50

Which statement correctly describes the relationship between bond prices and yields to maturity?

They move in opposite directions

A bond trades at par. Which relationship is correct?

YTM equals the coupon rate

A bond is upgraded by a credit-rating agency. What would normally happen to its market price?

Rise, brcause investors accept a lower yeild

A Japanese company issues a U.S.-dollar-denominated bond in the United States. In the course terminology, this is a:

Foreign bond

Which is a typical short-term government obligation sold at a discount and redeemed at par?

Treasury bill

Which statement about commercial paper is correct according to the course notes?

It is always sold at a discount

How does an investor earn a return on a banker’s acceptance?

By buying below maturity value and recieving maturity value

What happens to the face value of a real return bond as inflation occurs?

It is adjusted upward with inflation

A municipality issues debt and repays principal in portions over the bond’s life rather than all at maturity. This is characteristic of:

An installment debenture

A company expects market interest rates to decline and wants its borrowing cost to adjust downward. Which instrument may suit this view, while carrying rate risk if the forecast is wrong?

Floating-rate note (FRN)

With a payment-in-kind bond, who generally chooses whether to pay the coupon in cash or additional bonds?

The credit-rating agency

Which issuer is most likely to use a deferred-coupon bond?

A company building a mine or major infrastructure project that has not begun generating revenue

A bond’s coupon rate rises if the issuer is downgraded. What is a key risk of this structure?

A issuer’s interst expense rises when its financial condition may already be worsening

A seven-year bond returns half the return of a stock index, subject to the product’s terms. It is best described as:

An equity-linked bond

Why might a company call an existing bond when it has three years remaining?

To refinance at a lower yield and reduce interest expense

Who has the right to exercise the extension or retraction option in extendible and retractable bonds, according to the course notes?

The bondholder

A convertible bond is worth $96,000 and converts into 1,000 shares currently worth $92.75 each. Should the investor convert based only on these values?

No, because the shares are worth $92,750 in total

What is the main distinction between a regular convertible bond and a CoCo bond?

CoCo conversion may be triggered automatically by a specified weakening event

Which description best fits a senior tranche in an asset-backed security?

Lowest risk and lowest expected return among the tranches

What is prepayment risk in a mortgage-backed security?

Borrowers repay mortgages earlier than scheduled, potentially forcing reinvestment at lower yields

Equity represents:

Ownership in a company

What is the main objective commonly associated with buying common shares?

Capital growth

Which is a potential benefit of common shares?

Potential capital gain and limited liability

A company has net income of $160 million and pays $2 per share in dividends on 20 million common shares. What is the common-share payout ratio, ignoring preferred dividends?

25%

A company has net income of $160 million and pays $2 per share in dividends on 20 million common shares. The same company pays $10 million in preferred dividends. Using the course formula, what is the common-share payout ratio?

26.67%

A stock price is $15 and the company paid $1 per share in dividends over the past year. What is the trailing dividend yield?

6.67%

If the annual dividend remains $1 but the share price falls from $15 to $12, the dividend yield becomes:

8.33%

What is the main purpose of a dividend reinvestment plan (DRIP)?

To reinvest dividends to purchase more shares

Common shares are divided into classes with different voting rights. These are commonly described as:

Multiple Holding Shares and subordinate voting shares

Which statements are FALSE about ownership of all classes of common shares? I. You will achieve capital gains. II. You will receive quarterly dividends. III. Capital gains will always be favourably taxed relative to employment income. IV. All classes will always have the right to vote at the AGM.

I, II and IV only

A company’s stock trades at $120 and it wants the price to become $30 through a stock split. What is the split ratio?

4-for-1

What is the usual effect of a stock split on a shareholder’s total investment value immediately after the split, ignoring market movements?

It remains approximately the same

On September 3, a company declares a dividend payable October 19 to shareholders of record Monday, October 6. Using the course’s two-business-day settlement convention, when does the stock begin trading ex-dividend?

October 6

A company declares a dividend payable August 16 to shareholders of record Tuesday, July 26. What is the last date the stock trades with-dividend, using the course’s convention?

July 25

Which index weighting method is most commonly used in practice, according to the course material?

Market-capitalization weighted

What is the main difference between a price-return index and a total-return index?

Total return includes dividends; price return excludes them

A 12-year bond has a face value of $5,000,000, a 4% annual coupon paid semi-annually, and a required semi-annual yield of 4.5%. What is its approximate price as a percentage of face value?

95.40

A six-year CDS has a notional principal of $1,000,000 and a 30 bp annual premium paid semi-annually in arrears. The reference bond defaults halfway through a premium period and recovery is 30%. Under cash settlement, what is the approximate protection payment after accrued premium?

$698,250

A mezzanine tranche in an asset-backed security is most likely represented by which combination?

Credit rating BB, yield 4.2%

A four-year fixed-income security would typically be classified under the supplied course convention as a:

Short-term bond

Air Canada borrows money by issuing a fixed-income security and pledges some airplanes as security. What is the best answer in the supplied quiz?

Bond

Which of the followinf bonds would have the largest change in price if it’s yield to maturity were to rise or fall by 1%

A long-term bond with a low coupon rate

Suppose you own a 5 year bond with a yield to maturity of *%. What will cause the value of your bond to change the most?

If the bond’s yield to amturity falls by 2%

Which of the following statement about yield curves is false

1. A series of foward rates is used to calculate the zero coupon rate for a given maturity

2. Zero coupon bonds are priced using the spot curve

3. A bonds price and yield to maturity are derived using the spot curve to discount the individual cash flow

None are false