assessment 2 -1
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Questions and Answers

  1. A bond has a coupon interest rate set as 1-year LIBOR + 1% and coupon rate is paid annually. This bond is termed as a

  • A. Zero coupon bond.
  • B. Fixed coupon bond.
  • D. LIBOR bond
  • C. Floater. (correct)
    1. The coupon rate of a bond is decided as 6 months LIBOR + 1.25%. It has a floor rate of 4% and a Cap rate of 8%. The relevant LIBOR for the current coupon payments comes to 2%. The coupon rate for the current coupon period comes to.

  • A. 3.25%
  • B. 8%
  • C. 2%
  • D. 4% (correct)
    1. Floor rate of a variable rate bonds is

  • A. The maximum coupon rate.
  • B. The minimum coupon rate. (correct)
  • C. Minimum benchmark rate.
  • D. Maximum benchmark rate
    1. Cap rate of a variable rate bond is

    <p>A. The maximum coupon rate.</p> Signup and view all the answers

    1. Coupon rate of a floating rate bond is defined as 6 months LIBOR + 1.25%. It has a floor rate of 2% and a Cap rate of 5%. The LIBOR for the current coupon period comes to 4.2%. The applicable coupon rate for the current coupon period is,

    <p>B. 5%</p> Signup and view all the answers

    1. Which of the following is correct with respect to a variable rate bond.

    <p>A. A floor rate is to safeguard the investor from declining interest rates.</p> Signup and view all the answers

    1. A cap rate and a floor rate are applicable for a

    <p>D. Floating rate bond.</p> Signup and view all the answers

    1. If you expect the interest rates to increase in the near future and remain at a higher level for another 5 years period, what action will you be taking as a potential borrower for a 5 years period for a new capex project.

    <p>C. Borrow now on a fixed rate bond.</p> Signup and view all the answers

    1. Which of the following will represent equity capital of the corporate.

    <p>A. Retained earnings.</p> Signup and view all the answers

    1. Which of the following is not a part of the debt funding for a corporate.

    <p>C. Preference shares</p> Signup and view all the answers

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