CFA Fixed Income Analysis

Question 1

A bond with a 5% annual coupon, $1,000 face value, and 10 years to maturity is priced at $950. The yield to maturity (YTM) is:

Accepted Answer

Greater than 5%

Answer

Less than 5%

Answer

Equal to 5%

Answer

Cannot be determined without more information

Question 2

Duration measures a bond's price sensitivity to changes in interest rates. If a bond has a modified duration of 7, a 1% increase in yield will cause the bond price to:

Accepted Answer

Decrease by approximately 7%

Answer

Increase by approximately 7%

Answer

Decrease by exactly 7%

Answer

Increase by exactly 7%

Question 3

Which of the following bonds has the greatest price sensitivity to a change in interest rates?

Accepted Answer

A 10-year bond with a 5% coupon

Answer

A 5-year bond with a 10% coupon

Answer

A 10-year bond with a 10% coupon

Answer

A 5-year bond with a 5% coupon

Question 4

Convexity in bond analysis refers to:

Accepted Answer

The curvature in the price-yield relationship that duration alone underestimates

Answer

The linear relationship between bond price and yield

Answer

The relationship between coupon rate and bond price

Answer

The credit spread adjustment required for corporate bonds

Question 5

The nominal spread of a corporate bond is defined as:

Accepted Answer

The difference between the bond's YTM and the YTM of a benchmark government bond of similar maturity

Answer

The difference between the bond's YTM and the spot rate of equal maturity

Answer

The spread required to make the bond's present value equal to zero

Answer

The option-adjusted spread net of embedded options

Question 6

A callable bond will have a price that is:

Accepted Answer

Lower than an otherwise identical option-free bond because the call option benefits the issuer

Answer

Higher than an otherwise identical option-free bond at all yield levels

Answer

The same as an option-free bond regardless of yield levels

Answer

Higher than an option-free bond only when yields are rising