JAIIB Paper 1 Module D Quiz 2

Dated government securities generally have specified maturities and many pay periodic coupons. Treasury Bills are short-term discount instruments without periodic coupon payments.

Annual coupon equals coupon rate multiplied by face value: 7% × ₹1,000 = ₹70. The coupon is calculated on face value, not necessarily on the bond’s current market price.

Current yield is annual coupon divided by current market price: ₹80 / ₹1,000 = 8%. It does not account for capital gain/loss or reinvestment effects, unlike yield-to-maturity.

A bond may trade at a premium when its coupon is more attractive than the yield demanded by the market for comparable securities. The premium adjusts the buyer’s total return toward the prevailing market yield.

Duration measures sensitivity of a bond’s price to yield changes. Greater duration generally implies a larger percentage price movement for a given yield change, assuming other factors remain unchanged.

Yield to maturity incorporates coupon cash flows, time to maturity and the difference between purchase price and redemption value, under assumptions such as holding to maturity and reinvesting coupons at the calculated yield.

Competitive bidders submit bids at specified prices or yields under the announced auction method. Allocation depends on auction rules, accepted bids and the issue terms.

Primary Dealers support the government securities market, including participation in primary auctions and market-making, subject to RBI’s regulatory framework and obligations.

Corporate bonds expose investors to the issuing company’s creditworthiness and possible default or downgrade. Sovereign securities have different risk characteristics, though they still carry interest-rate and market risks.

An ICD is a short-term funding arrangement between companies. Its terms, credit risk and legal documentation matter; it is not a government security or a retail deposit product.

An IPO is a public offering of shares by a company entering the public market. It involves issue and disclosure requirements and may be accompanied by listing on a recognised stock exchange.

A rights issue gives existing shareholders an opportunity to subscribe to additional securities, generally in proportion to their holdings as on the relevant record date, subject to the offer terms and regulations.

Bonus shares are issued by capitalising eligible reserves. Shareholders receive additional shares proportionately, so their percentage ownership generally remains the same, while the number of shares outstanding increases.

In an OFS, existing shareholders sell their holdings to investors. The proceeds generally go to the selling shareholders rather than constituting fresh capital raised by the company.

Private placement is an issue route directed to identified persons under applicable company and securities laws. It remains subject to statutory conditions and is not an unrestricted public invitation.

ASBA blocks the application amount in the investor’s bank account while the application is processed. For non-allotment, the amount is normally unblocked rather than being permanently debited, subject to the prescribed process.

A QIP is a specified capital-raising route for listed issuers to issue eligible securities to QIBs, subject to SEBI rules and other applicable conditions.

Underwriting arrangements can support an issue by committing to subscribe to or procure subscriptions for the portion covered by the agreement if the public does not subscribe to it, subject to the contract and applicable rules.

Book building gathers investor bids at different prices within an announced range. Demand information is used to determine the final issue price under the applicable process.

A demat account holds securities electronically and facilitates transfer and settlement without physical certificates. It is different from a trading account and a bank account.