CFA FIXED INCOME FINAL EXAM AND
DETAILED ANSWERS GRADED A+.
A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a coupon rate of
10% with interest paid semi-annually, and is currently priced at 102% of par. The bond's:
tenor is six years.
nominal rate is 5%.
redemption value is 102% of the par value. - Answer tenor is six years.
with a bond, the nominal rate is the same as the - Answer Coupon rate
To obtain the spot yield curve, a bond analyst would most likely use the most:
recently issued and actively traded corporate bonds.
recently issued and actively traded government bonds.
seasoned and actively traded government bonds. - Answer recently issued and actively traded
government bonds.
To obtain the spot yield curve, a bond analyst would prefer to use the most recently issued and actively
traded government bonds. Such bonds will have similar liquidity as well as fewer tax effects because they
will be priced closer to par value.
Ted Nguyen is an investor domiciled in a country with an original issue discount tax provision. He
purchases a zero-coupon bond at a deep discount to par value with the intention of holding the bond
until maturity. At maturity, he will most likely face:
a capital gain.
neither a capital loss nor gain.
a capital loss. - Answer neither a capital loss nor gain.
, An original issue discount tax provision allows the investor to increase the cost basis of the bond, so
when the bond matures, the investor faces no capital gain or loss.
A BBB rated corporation wishes to issue debt to finance its operations at the lowest cost possible. If it
decides to sell a pool of receivables into a special purpose vehicle (SPV), its primary motivation is most
likely to:
receive a guaranty from the SPV to improve the corporation's credit rating.
allow the corporation to retain a first lien on the assets of the SPV.
segregate the assets into a bankruptcy-remote entity for bondholders. - Answer segregate the assets
into a bankruptcy-remote entity for bondholders.
An investor purchases the bonds of JLD Corp., which pay an annual coupon of 10% and mature in 10
years, at an annual yield to maturity of 12%. The bonds will most likely be selling at:
par.
a premium.
a discount. - Answer a discount.
If a bank wants the ability to retire debt prior to maturity in order to take advantage of lower borrowing
rates, it most likely issues a:
convertible bond.
callable bond.
putable bond. - Answer callable bond.
Which of the following is least likely to be a type of embedded option in a bond issue granted to
bondholders? The right to:
put the issue.
DETAILED ANSWERS GRADED A+.
A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a coupon rate of
10% with interest paid semi-annually, and is currently priced at 102% of par. The bond's:
tenor is six years.
nominal rate is 5%.
redemption value is 102% of the par value. - Answer tenor is six years.
with a bond, the nominal rate is the same as the - Answer Coupon rate
To obtain the spot yield curve, a bond analyst would most likely use the most:
recently issued and actively traded corporate bonds.
recently issued and actively traded government bonds.
seasoned and actively traded government bonds. - Answer recently issued and actively traded
government bonds.
To obtain the spot yield curve, a bond analyst would prefer to use the most recently issued and actively
traded government bonds. Such bonds will have similar liquidity as well as fewer tax effects because they
will be priced closer to par value.
Ted Nguyen is an investor domiciled in a country with an original issue discount tax provision. He
purchases a zero-coupon bond at a deep discount to par value with the intention of holding the bond
until maturity. At maturity, he will most likely face:
a capital gain.
neither a capital loss nor gain.
a capital loss. - Answer neither a capital loss nor gain.
, An original issue discount tax provision allows the investor to increase the cost basis of the bond, so
when the bond matures, the investor faces no capital gain or loss.
A BBB rated corporation wishes to issue debt to finance its operations at the lowest cost possible. If it
decides to sell a pool of receivables into a special purpose vehicle (SPV), its primary motivation is most
likely to:
receive a guaranty from the SPV to improve the corporation's credit rating.
allow the corporation to retain a first lien on the assets of the SPV.
segregate the assets into a bankruptcy-remote entity for bondholders. - Answer segregate the assets
into a bankruptcy-remote entity for bondholders.
An investor purchases the bonds of JLD Corp., which pay an annual coupon of 10% and mature in 10
years, at an annual yield to maturity of 12%. The bonds will most likely be selling at:
par.
a premium.
a discount. - Answer a discount.
If a bank wants the ability to retire debt prior to maturity in order to take advantage of lower borrowing
rates, it most likely issues a:
convertible bond.
callable bond.
putable bond. - Answer callable bond.
Which of the following is least likely to be a type of embedded option in a bond issue granted to
bondholders? The right to:
put the issue.
