CSC1 Exam Dumps : Canadian Securities Course Exam 1

To calculate the first coupon payment for Brice's real return bond, we follow these steps:

Step 1: Determine the adjusted principal.

The bond is a real return bond, meaning its principal is adjusted for inflation based on the Consumer Price Index (CPI). The initial principal is$10,000, and CPI increases by0.8%over six months.

Step 2: Calculate the semi-annual coupon payment.

The coupon rate is5% annual, paid semi-annually, so each coupon payment is based on half the annual rate:

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Conclusion:

The first coupon payment Brice will receive is$252.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Discussion on real return bonds and their adjustment mechanism for inflation​.

Canadian Securities Course (CSC), Volume 1, Chapter 7: Fixed-Income Securities – Pricing and Trading. Calculation methodologies for bond payments​.

Sinking fundsrequire the issuer to redeem a specified portion of the bond issue at regular intervals. This ensures systematic debt reduction and is mandated regardless of market conditions.

Purchase funds, however, allow the issuer to buy back bonds only if they are available in the market at or below a stipulated price, making redemption conditional on market conditions.

B. Sinking funds can redeem bonds only if they trade below a stipulated price: This applies to purchase funds, not sinking funds.

C. Sinking funds involve the issuer determining when bonds are redeemed while purchase funds involve the investor determining when the bonds are redeemed: Investors have no role in determining bond redemption under either method.

D. Sinking funds can redeem the bonds any time while purchase funds follow a prearranged schedule: Sinking funds follow a schedule, and purchase funds rely on market conditions.

Preferred shares provide investors withpriority to receive fixed dividends ahead of common shareholders. This fixed income feature makes preferred shares similar to debt instruments but with characteristics of equity. While preferred shareholders have no guaranteed dividend payment (subject to the company’s discretion and profitability), they are entitled to receive dividends before any distribution to common shareholders.

Preferred shares do not have a higher potential for capital appreciation compared to common shares, as they are typically designed for income rather than growth. Additionally, preferred shareholders have a lower claim on assets compared to debt holders.