Saturday, November 13, 2010

Securities Licensing Exam - Chapter 5

It may have taken all morning to do this 14 page chapter, but I did it.

My score was a 12/15 but it is very surprising as well as deceptive! I wasn't answering with confidence and don't know the bond ratio, parity prices and other calculations by heart and I was guessing. This is something I'm going to want to study more later.

The questions which I missed, were 9, 13, 15. Eurobonds, who pays interest on a bond sale (the BUYER pays interest on a bond to the seller, but I was thinking the seller i.e. issuer, and I was wrong), and given a choice of bonds which one has the highest market risk. I chose the 30 yr debenture, thinking the one w/ the longest maturity. But market risk also applies for low coupons, and answer D was a 30 yr 5% first mortgage bond. of the two, incidentally, the debenture has a higher credit risk, as the latter is secured by collateral.

I really enjoyed the material in this chapter, if I can just memorize the ratios, how to get parity. Also, I need to get straight which way a bond converting to stock is good. It is good if the stock price is higher than the bond conversion price. Bond conversion price is opposite, I think.

I liked learning about yellow sheets and arbitrage in particular. The material is all new, as are the concepts, which is why I think it is taking me so long to read it.

No comments: