Quiz AFM 121 sec 03 with answers

Quiz AFM 121 sec 03 with answers - Canada lowered its...

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Quiz #1 January 19 th , 2012 AFM 121 Section 3 Andrew Ecclestone, CFA Name:_____________________ Student #:__________________ Question Score 1 2 3 Total Question 1 (5 marks) a) What are the primary characteristics of a Fixed-Income Security? Promise to make fixed payments according to a preset schedule Typically issued by Government or large corporation Have maturity date/term that exceeds 1 year. b) What are the primary factors that affect the value of a fixed income instrument trading in the secondary market? Interest rates
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Changes in credit quality Liquidity Question 2 (2 marks) a) What would you expect to happen to the value of a corporate bond with a 5% coupon and a three year maturity, that is currently trading in the secondary market, if the Bank of
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Unformatted text preview: Canada lowered its interest rate from 6% to 5%? Lower rates leads to an increase in price (Inverse relationship) b) You just received a cheque in the mail representing your semi-annual coupon payment on a Canada bond with a $50,000 face value and a 6% coupon. What is the amount of the cheque? $1,500 = ($50,000 * 6%)/2 Question 3 (3 marks) If you were to visit your local Honda dealership, there is both a primary and secondary market in action. Explain. Is the Honda retailer a dealer or broker? The new car lot is a primary market; every new car sold is the equivalent of an IPO. The used car lot is a secondary market. The Honda dealership is a Dealer, buying and selling out of inventory....
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Quiz AFM 121 sec 03 with answers - Canada lowered its...

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