CFA Fixed Income Level 1 Top Verified Questions &
Answers 2025 Update A+ Guaranteed
Which of the following securities is least likely classified as a Eurobond? A bond that is denominated
in:
A) Euros and issued in Germany
B) Euros and issued in the United States
C) U.S. dollars And issued in Japan - ANS ✔ - A) Euros and issued in Germany
Jacob Sands, CFA, is an investment advisor working with a client who would like to incorporate more
fixed income into his investment portfolio. The client already has a significant amount of funds
allocated to relatively safe investments and has asked Sands about adding distressed debt to his
portfolio. Sands will most likely describe these investments as having a:
A) Low credit rating, high risk, high yield
B) Medium credit rating, high risk, low yield
C) High credit rating, low risk, low yield - ANS ✔ - A) Low credit rating, high risk, high yield
If a $1,000 bond has a 14% coupon rate and a current price of 950, what is the current yield?
A) 14.00%
B) 14.74%
C) 15.36% - ANS ✔ - B) 14.74%
Assuming a normal yield curve environment, higher yields must be offered by corporate issuers on
bonds that mature in 20 years compared with those that mature in 10 years, if the 20-year bonds are
considered:
A) High yield only
B) Investment grade only
C) Investment grade or high yield - ANS ✔ - C) Investment grade or high yield
The interbank funds market is most accurately described as:
A) Banks' borrowing of reserves from the central bank
,B) Trading of negotiable certificates of deposit
C) Unsecured short-term loans from one bank to another - ANS ✔ - C) Unsecured short-term loans
from one bank to another
A bond with a 12% semiannual coupon is currently trading at 102.25 per 100 of face value and has
seven years to maturity. Which of the following is closest to the yield to maturity (YTM) on the bond?
A) 11.21%
B) 11.52%
C) 11.91% - ANS ✔ - B) 11.52%
As compared to an equivalent non-puttable bond, a puttable bond's yield should be:
A) higher
B) lower
C) the same - ANS ✔ - B) lower
Consider $1,000,000 par value, 10-year, 6.5% coupon bonds issued on January 1, 20X5. The market
rate for similar bonds is currently 5.7%. A sinking fund provision requires the company to redeem
$100,000 of the principal each year. Bonds called under the terms of the sinking fund provision will
be redeemed at par. A bondholder would:
A) be indifferent between having her bonds called under the sinking fund provision or not called
B) prefer not to have her bonds called under the sinking fund provision
C) prefer to have her bonds called under the sinking fund provision - ANS ✔ - B) prefer not to have
her bonds called under the sinking fund provision
Consider a 6-year $1,000 par bond priced at $1,011. The coupon rate is 7.5% paid semiannually. Six-
year bonds with comparable credit quality have a yield to maturity (YTM) of 6%. Should an investor
purchase this bond?
A) No, the bond is overvalued by $64
B) Yes, the bond is undervalued by $38
C) Yes, the bond is undervalued by $64 - ANS ✔ - C) Yes, the bond is undervalued by $64
To reduce the cost of long-term borrowing, a corporation with a below-average credit rating could:
A) decrease credit enhancement
,B) issue commercial paper
C) issue securitized bonds - ANS ✔ - C) issue securitized bonds
Jane Reeves manages the travel schedule for the analysts and principals of the Overwater
Underwriters (OU) Company. The schedule includes several roadshows over the next three months
on behalf of Lakecot, Inc., a company that hired OU to bring its debt issuance to the marketplace.
Lakecot's debt is best described as a:
A) debut issue
B) shelf issue
C) repeat issue - ANS ✔ - A) debut issue
A 20-year, 10% semi-annual coupon bond selling for $925 has a yield to maturity (YTM) of:
A) 11.23%.
B) 9.23%.
C) 10.93%. - ANS ✔ - C) 10.93%.
An analyst who evaluates both fixed-income and equity indices will find that the turnover for the
former relative to the latter will be:
A) higher.
B)equivalent.
C)lower. - ANS ✔ - A) higher.
A disadvantage of G-spreads and I-spreads is that they are theoretically correct only if the spot yield
curve is:
A)downward sloping.
B)flat.
C)upward sloping. - ANS ✔ - B)flat.
Consider a $1,000-face value, 12-year, 8%, semiannual coupon bond with a YTM of 10.45%. The
change in value for a decrease in yield of 38 basis points is:
A)$21.18.
B)$22.76.
C)$23.06. - ANS ✔ - C)$23.06.
, An investor most concerned with reinvestment risk would be least likely to:
A)prefer a noncallable bond to a callable bond.
B)prefer a lower coupon bond to a higher coupon bond.
C)eliminate reinvestment risk by holding a coupon bond until maturity. - ANS ✔ - C)eliminate
reinvestment risk by holding a coupon bond until maturity.
Jacobs Company (Jacobs) has issued floating-rate notes (FRNs) using a market reference rate (MRR)
of 3.5%. Jacobs is deemed as having less credit risk than the institution from which the MRR was
derived. Which of the following annualized coupon rates for the note is
most likely?
A)3.50%.
B)3.85%.
C)3.15%. - ANS ✔ - C)3.15%.
The coupon rate of a fixed income security is stated as 90-day LIBOR plus 125 basis points. This
security is most accurately described as a(n):
A)floating-rate note.
B)reference-rate note.
C)variable-rate note. - ANS ✔ - A)floating-rate note.
A bond offers a 12% coupon paid semiannually and has 15 years left to maturity. Assuming upper
value of $1,000 and a yield to maturity of 16%, the price of the bond is closest to:
A)$777.
B)$776.
C)$775. - ANS ✔ - C)$775.
Consider a bond that pays an annual coupon of 5% and that has three years remaining until maturity.
Assume the term structure of interest rates is flat at 6%. If the term structure of interest rates does
not change over the next twelve-month interval, the bond's price change (as a percentage of par) will
be
closest to:
A)0.00.
B)0.84.
Answers 2025 Update A+ Guaranteed
Which of the following securities is least likely classified as a Eurobond? A bond that is denominated
in:
A) Euros and issued in Germany
B) Euros and issued in the United States
C) U.S. dollars And issued in Japan - ANS ✔ - A) Euros and issued in Germany
Jacob Sands, CFA, is an investment advisor working with a client who would like to incorporate more
fixed income into his investment portfolio. The client already has a significant amount of funds
allocated to relatively safe investments and has asked Sands about adding distressed debt to his
portfolio. Sands will most likely describe these investments as having a:
A) Low credit rating, high risk, high yield
B) Medium credit rating, high risk, low yield
C) High credit rating, low risk, low yield - ANS ✔ - A) Low credit rating, high risk, high yield
If a $1,000 bond has a 14% coupon rate and a current price of 950, what is the current yield?
A) 14.00%
B) 14.74%
C) 15.36% - ANS ✔ - B) 14.74%
Assuming a normal yield curve environment, higher yields must be offered by corporate issuers on
bonds that mature in 20 years compared with those that mature in 10 years, if the 20-year bonds are
considered:
A) High yield only
B) Investment grade only
C) Investment grade or high yield - ANS ✔ - C) Investment grade or high yield
The interbank funds market is most accurately described as:
A) Banks' borrowing of reserves from the central bank
,B) Trading of negotiable certificates of deposit
C) Unsecured short-term loans from one bank to another - ANS ✔ - C) Unsecured short-term loans
from one bank to another
A bond with a 12% semiannual coupon is currently trading at 102.25 per 100 of face value and has
seven years to maturity. Which of the following is closest to the yield to maturity (YTM) on the bond?
A) 11.21%
B) 11.52%
C) 11.91% - ANS ✔ - B) 11.52%
As compared to an equivalent non-puttable bond, a puttable bond's yield should be:
A) higher
B) lower
C) the same - ANS ✔ - B) lower
Consider $1,000,000 par value, 10-year, 6.5% coupon bonds issued on January 1, 20X5. The market
rate for similar bonds is currently 5.7%. A sinking fund provision requires the company to redeem
$100,000 of the principal each year. Bonds called under the terms of the sinking fund provision will
be redeemed at par. A bondholder would:
A) be indifferent between having her bonds called under the sinking fund provision or not called
B) prefer not to have her bonds called under the sinking fund provision
C) prefer to have her bonds called under the sinking fund provision - ANS ✔ - B) prefer not to have
her bonds called under the sinking fund provision
Consider a 6-year $1,000 par bond priced at $1,011. The coupon rate is 7.5% paid semiannually. Six-
year bonds with comparable credit quality have a yield to maturity (YTM) of 6%. Should an investor
purchase this bond?
A) No, the bond is overvalued by $64
B) Yes, the bond is undervalued by $38
C) Yes, the bond is undervalued by $64 - ANS ✔ - C) Yes, the bond is undervalued by $64
To reduce the cost of long-term borrowing, a corporation with a below-average credit rating could:
A) decrease credit enhancement
,B) issue commercial paper
C) issue securitized bonds - ANS ✔ - C) issue securitized bonds
Jane Reeves manages the travel schedule for the analysts and principals of the Overwater
Underwriters (OU) Company. The schedule includes several roadshows over the next three months
on behalf of Lakecot, Inc., a company that hired OU to bring its debt issuance to the marketplace.
Lakecot's debt is best described as a:
A) debut issue
B) shelf issue
C) repeat issue - ANS ✔ - A) debut issue
A 20-year, 10% semi-annual coupon bond selling for $925 has a yield to maturity (YTM) of:
A) 11.23%.
B) 9.23%.
C) 10.93%. - ANS ✔ - C) 10.93%.
An analyst who evaluates both fixed-income and equity indices will find that the turnover for the
former relative to the latter will be:
A) higher.
B)equivalent.
C)lower. - ANS ✔ - A) higher.
A disadvantage of G-spreads and I-spreads is that they are theoretically correct only if the spot yield
curve is:
A)downward sloping.
B)flat.
C)upward sloping. - ANS ✔ - B)flat.
Consider a $1,000-face value, 12-year, 8%, semiannual coupon bond with a YTM of 10.45%. The
change in value for a decrease in yield of 38 basis points is:
A)$21.18.
B)$22.76.
C)$23.06. - ANS ✔ - C)$23.06.
, An investor most concerned with reinvestment risk would be least likely to:
A)prefer a noncallable bond to a callable bond.
B)prefer a lower coupon bond to a higher coupon bond.
C)eliminate reinvestment risk by holding a coupon bond until maturity. - ANS ✔ - C)eliminate
reinvestment risk by holding a coupon bond until maturity.
Jacobs Company (Jacobs) has issued floating-rate notes (FRNs) using a market reference rate (MRR)
of 3.5%. Jacobs is deemed as having less credit risk than the institution from which the MRR was
derived. Which of the following annualized coupon rates for the note is
most likely?
A)3.50%.
B)3.85%.
C)3.15%. - ANS ✔ - C)3.15%.
The coupon rate of a fixed income security is stated as 90-day LIBOR plus 125 basis points. This
security is most accurately described as a(n):
A)floating-rate note.
B)reference-rate note.
C)variable-rate note. - ANS ✔ - A)floating-rate note.
A bond offers a 12% coupon paid semiannually and has 15 years left to maturity. Assuming upper
value of $1,000 and a yield to maturity of 16%, the price of the bond is closest to:
A)$777.
B)$776.
C)$775. - ANS ✔ - C)$775.
Consider a bond that pays an annual coupon of 5% and that has three years remaining until maturity.
Assume the term structure of interest rates is flat at 6%. If the term structure of interest rates does
not change over the next twelve-month interval, the bond's price change (as a percentage of par) will
be
closest to:
A)0.00.
B)0.84.
