Question 1: Explain the difference between calling a bond and bond refunding.
Question 2: Identify the three most important determinants of the price of a bond. Describe the effect of each.
Question 3: Given a change in the level of interest rates, discuss how two major factors will influence the relative change in price for individual bonds.
Question 4: Briefly describe two indenture provisions that can affect the maturity of a bond.
Question 5: Explain the differences in taxation of income from municipal bonds, from U.S. Treasury bonds, and from corporate bonds.
Question 6: For several institutional participants in the bond market, explain what type of bond each is likely to purchase and why.
Question 7: Why should investors be aware of the trading volume for bonds in their portfolio?
Question 8: What is the purpose of bond ratings?
Question 9: Based on the data in Exhibit discuss the makeup of the Japanese bond market and how and why it differs from the U.S. market.
Exhibit:
2010 ( e )
Total Value Percent of Total
A. U.S. Dollars
Sovereign 5,309,688 34.5
Quasi & Foreign Govt. 1,939,190 12.6
Securitized/Collateralized 4,247,750 27.6
Corporate 2,801,053 18.2
High-Yield/Emerging Mkt. 1,108,109 7.1
Total 15,405,790 100.0
B. Euros
Sovereign 6,914,941 64.1
Quasi & Foreign Govt. 852,231 7.9
Securitized/Collateralized 1,326,892 12.3
Corporate 1,564,222 14.5
High-Yield/Emerging Mkt. 140,241 1.3
Total 10,798,527 100.0
C. Japanese Yen
Sovereign 4,659,743 81.4
Quasi & Foreign Govt. 429,337 7.5
Securitized/Collateralized 5,724 0.1
Corporate 635,420 11.1
High-Yield/Emerging Mkt. - 0.0
Total 5,730,224 100.0
D. Pound Sterling
Sovereign 792,517 50.2
Quasi & Foreign Govt. 202,076 12.8
Securitized/Collateralized 94,723 6.0
Corporate 472,037 29.9
High-Yield/Emerging Mkt. 17,366 1.1
Total 1,578,719 100.0
Question 10: Discuss the positives and negatives of investing in a government agency issue rather than a straight Treasury bond.