CFS Fixed Income & Bonds Flashcards
6 cards from real CFS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFS Fixed Income & Bonds flashcards as text
A zero-coupon bond is purchased at $600 and matures at $1,000 in 5 years. What best describes its return mechanism?
Answer: It accretes to par value through amortization of the discount
Zero-coupon bonds are issued at a discount and accrete to par value over time, with the difference representing the investor's return.
Which bond type allows the investor to exchange the bond for shares of the issuer's stock?
Answer: Convertible bond
Convertible bonds give the holder the right to convert the bond into a specified number of the issuer's common shares.
What is 'credit spread' in bond investing?
Answer: The yield difference between a corporate bond and a comparable Treasury bond
Credit spread is the additional yield a corporate or non-Treasury bond offers above a comparable-maturity Treasury bond to compensate for credit risk.
Which municipal bond type is backed by the full taxing authority of the issuing government entity?
Answer: General obligation bond
General obligation bonds are backed by the issuer's unlimited taxing power, making them typically safer than revenue bonds.
What does the term 'laddering' refer to in fixed income portfolio management?
Answer: Purchasing bonds with staggered maturity dates
Bond laddering involves buying bonds with different maturity dates to reduce interest rate risk and provide regular reinvestment opportunities.
Convexity in bond analysis refers to:
Answer: The curvature in the price-yield relationship beyond what duration captures
Convexity measures the curvature of the price-yield relationship, providing a more accurate estimate of price changes when interest rate moves are large.