CFM Fixed Income & Credit Analysis Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFM Fixed Income & Credit Analysis flashcards as text
What is the fundamental relationship between bond prices and interest rates?
Answer: Bond prices move inversely to interest rates
When interest rates rise, existing bond prices fall because new bonds offer higher yields, making older bonds less attractive.
Which measure quantifies the weighted average time to receive a bond's cash flows?
Answer: Duration
Duration measures the weighted average time to receive all cash flows and is used as a proxy for interest rate sensitivity.
What is a credit default swap (CDS) primarily used for?
Answer: Hedging credit risk on a reference entity
A CDS is a derivative contract where the protection buyer pays periodic premiums in exchange for compensation if a credit event occurs on the reference entity.
What does positive convexity indicate about a bond's price-yield relationship?
Answer: Price increases more than duration predicts when rates fall, and decreases less when rates rise
Positive convexity means the price-yield curve is curved such that price gains exceed duration-estimated gains in falling rate environments.
What is the credit spread in fixed income markets?
Answer: The yield difference between a corporate bond and a comparable Treasury bond
The credit spread compensates investors for taking on credit risk above the risk-free rate represented by Treasury bonds.
Which rating category do Moody's, S&P, and Fitch classify as 'investment-grade'?
Answer: Baa3/BBB- and above
Investment-grade bonds are rated Baa3/BBB- or higher, indicating adequate capacity to meet financial commitments.