Course Name: Fixed Income Securities

Course No. – FIN: 514

Chapter – 1: Features of Debt Securities

Questions at a glance:
1. What is fixed income securities? Describe the categories of fixed income securities.
2. What is Indenture and what are the covenants?
3. What is the term to maturity of a bond? Why the term to maturity of a bond is important/crucial?
4. What is par value of a bond? Why a bond sells above or below its par value?
5. What is coupon rate? How does the coupon rate affect the bond’s price sensitivity to changes in
market interest rates?
6. What is zero-coupon bond? How does the holder of a zero-coupon bond realize interest?
7. What is step-up note? What are the types of step-up note?
8. What is deferred coupon bond?
9. Define floating-rate securities. What is the mechanic for the payment and setting of the coupon
rate?
10. Define inverse floaters. Why an investor would be interested in an inverse floater?
11. Why issuers have been able to create floating-rate securities with offbeat coupon formulas?
12. Define accrued interest. What is the exception rule of accrued interest?
13. Define convertible bond and exchangeable bond.
14. Define put provision. What is the advantage of a put provision to the bondholder?
15. Define dollar-denominated issue, non dollar-denominated issue and dual-currency issue.
16. What are the most common embedded options granted to issuers?
17. What are the most common embedded options granted to bondholders?
18. Describe the importance of understanding of embedded options.
19. What is collateralized loan? Which types of collateralized borrowing arrangements are used by
investors?

Chapter – 2: Risks Associated with Investing in Bonds

Questions at a glance:
1. Which types of risk are associated with investing in bonds?
2. Describe the relationships between changes in interest rate and price of bond.
3. Describe the bond features that affect interest rate risk.
4. Why will the price of a floating-rate security fluctuate?
5. How would you measure interest rate risk?
6. Explain the yield curve risk graphically and mathematically.
7. What are the types of credit risk?

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 Chapter – 3: Overview of Bond Sectors and Instrument
Questions at a glance:
1. State the overview of the sectors of the bond market.
2. Describe the methods of distributing new government securities.
3. Define Treasury securities. State the overview of Treasury Debt Instruments. / Which securities
does the Treasury issue?
4. Define municipal securities. State the types of municipal securities.
5. What are the rights of bondholders in a bankruptcy?
6. What are the factors considered by rating agencies in assigning a credit rating?
7. State the overview of corporate debt securities.
8. What are the debt obligations of banks to raise funds?
9. Describe the markets for bonds.

Chapter – 4: Understanding Yield Spreads

Questions at a glance:
1. Which interest rate policy tools are used by Central Bank in implementing monetary policy?
2. What are the risks of Treasury security?
3. Describe the Treasury yield curve graphically.
4. Describe the theories of the term structure of interest rates.

Chapter – 5: Introduction to the Valuation of Debt Securities

Questions at a glance:
1. What are the steps of valuation of a financial asset?
2. What is cash flow? Why investors find difficulty to estimate the cash flows when they purchase a
fixed income security?
3. How would you determine interest rate?
4. How would you discount the expected cash flows?
5. Describe the relationship between coupon rate, discount rate, and price relative to par
value.
6. Shows how change in a bond’s value as it moves toward maturity.
7. Shows how the movement of a premium, discount, and par bond as a bond moves towards
maturity.
Information about the three bonds: All bonds mature in 20 years and have a yield required
by the market of 8%. Coupon payments are annual. Premium bond is at 10% coupon,
discount bond at 6% coupon and par bond at 8% coupon. Face value of the bonds is Tk.
100.
8. State the reasons for using treasury spot rates.

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 Chapter – 11: Asset-Backed Sector of the Bond Market
Questions at a glance:
1. What is securitization? What are the largest sectors of the asset-backed securities market?
2. Describe the securitization process.
3. Which parties are involved in securitization?
4. Describe the basic features of securitization transaction.
5. What are the major types of assets that have been securitized?
6. What is collateralized debt obligation (CDO)?

Chapter – 14: Valuation of Interest Rate Derivatives Instruments

Questions at a glance:
1. Briefly discuss the factors that influence the value of an option on a fixed income
instrument.
2. Briefly discuss the factors that influence the value of a futures option.
3. Describe the pricing models for options and options on futures.

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