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RSE practice questions: fixed income
Ten RSE practice questions on fixed income. The retail blueprint focuses less on duration math than the CIRE; more on product distinctions (GIC vs HISA, regular bond vs strip vs real-return), settlement (T+1 since May 27 2024), and disclosure.
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FAQ
GIC vs HISA - what's the suitability difference?
GICs are typically term-locked with CDIC coverage up to $100,000 per category. HISAs are demand deposits with similar CDIC coverage but variable rate. GIC is suitable for a client who needs the rate fixed and does not need access; HISA suits one who needs liquidity.
What's a strip bond?
A bond stripped of its coupons and the residual principal traded separately. Each strip is a zero-coupon instrument. Tax-inefficient in non-registered accounts due to deemed-interest accrual.
Real-return bonds (RRB)?
Government of Canada bonds with both principal and coupons indexed to CPI. Provide protection against inflation but are sensitive to changes in real yields. Government of Canada stopped issuing new RRBs in 2022; secondary-market trading continues.
T+1 settlement implications for retail?
Faster settlement reduces counterparty risk but compresses the window for funding. Clients selling and buying the same day must time around the settlement to avoid free-riding violations.
Accrued interest on coupon bonds?
Buyer pays seller accrued interest from the last coupon date to settlement date. Calculation depends on day-count: 30/360 for most corporates, actual/actual for most government bonds.