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
Which bond characteristic measures the sensitivity of a bond's price to changes in interest rates?
Answer: Duration
Duration measures how much a bond's price will change for a given change in interest rates, expressed in years.
A bond is said to be trading at a 'discount' when its market price is:
Answer: Below its par value
A bond trades at a discount when its market price is below its face (par) value, typically because prevailing interest rates are higher than the bond's coupon rate.
What is the primary risk associated with callable bonds from an investor's perspective?
Answer: Reinvestment risk
Callable bonds expose investors to reinvestment risk because the issuer can redeem the bond early, forcing investors to reinvest at potentially lower prevailing rates.
Which rating from Moody's indicates the highest investment-grade bond quality?
Answer: Aaa
Moody's highest rating is Aaa, indicating the issuer has an exceptional capacity to meet financial commitments.
The yield curve is considered 'inverted' when:
Answer: Short-term yields are higher than long-term yields
An inverted yield curve occurs when short-term interest rates exceed long-term rates, often considered a recession predictor.
Which type of bond has its principal and interest payments adjusted based on inflation?
Answer: TIPS (Treasury Inflation-Protected Securities)
TIPS adjust their principal value with the Consumer Price Index (CPI), protecting investors from inflation erosion.