CFA Fixed Income Final Exam And All
Answers To Pass.
The six-year spot rate is 7% and the five-year spot rate is 6%. The implied one-year forward rate five
years from now is closest to: - Answer 12.0%
Which of the following contains the overall rights of the bondholders?
A)Covenant.
B)Indenture.
C)Rights offering. - Answer Indenture
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. - Answer floating-rate note
An investor purchases a 4-year, 6%, semiannual-pay Treasury note for $9,485. The security has a par
value of $10,000. To realize a total return equal to 7.515% (its yield to maturity), all payments must be
reinvested at a return of:
A)more than 7.515%.
B)less than 7.515%.
C)7.515%. - Answer 7.515%
The price value of a basis point (PVBP) for a bond is most accurately described as:
A)the product of a bond's value and its duration.
B)an estimate of the curvature of the price-yield relationship for a small change in yield.
C)the change in the price of the bond when its yield changes by 0.01%. - Answer the change in the
price of the bond when its yield changes by 0.01%.
,Which of the following least likely represents a primary market offering? When bonds are sold:
A)from a dealer's inventory.
B)in a private placement.
C)on a best-efforts basis. - Answer from a dealer's inventory
The risk of receiving less than market value when selling a bond is referred to as:
A)recovery rate risk.
B)loss severity risk.
C)market liquidity risk. - Answer market liquidity risk
Securitization least likely benefits the financial system by:
A)increasing liquidity for mortgages and other loans.
B)increasing the amount banks are able to lend.
C)removing liabilities from bank balance sheets. - Answer removing liabilities from bank balance sheets
A non-callable bond has a modified duration of 7.26. Which of the following is the closest to the
approximate price change of the bond with a 25 basis point increase in rates?
A)1.820%.
B)-0.018%.
C)-1.820%. - Answer -1.820%
For a bond is trading at a discount, the current yield will most likely be:
A)higher than the yield to maturity.
B)the same as the yield to maturity.
C)lower than the yield to maturity. - Answer lower than the yield to maturity
In contrast with most asset-backed securities (ABS), a collateralized debt obligation (CDO):
A)employs a collateral manager.
,B)has senior and subordinate tranches.
C)is issued through a special purpose vehicle. - Answer employs a collateral manager
A company desiring to issue a fixed-income security has placed $10 million worth of loan receivables in a
special purpose entity (SPE) that is independent of the issuer. The credit rating agencies suggest the
company secure a third-party guarantee in order to have the security rated AAA. After completing the
transfer of assets to the SPE and obtaining a letter of credit from a national bank, the company issues the
AAA rated security. The securities are most likely:
A)commercial paper.
B)global bonds.
C)asset-backed securities. - Answer asset-backed securities
An investment advisor states, "An investor's annualized holding period return from investing in a bond
consists of three parts: the coupon interest payments, the return of principal, and any capital gain or loss
that the investor realizes on the bond." The advisor is:
A)correct.
B)incorrect, because these are not the only sources of return from investing in a bond.
C)incorrect, because an investor who holds a bond to maturity will not realize a capital gain or loss. -
Answer incorrect, because these are not the only sources of return from investing in a bond
If a Treasury bond has an annual modified duration of 10.27 and an annual convexity of 143, which of
the following is closest to the estimated percentage price change in the bond for a 125 basis point
increase in interest rates?
A)-11.72%.
B)-13.96%.
C)-9.33%. - Answer -11.72%
A $1,000 par value, 10%, semiannual, 20-year debenture bond is currently selling for $1,100. What is this
bond's current yield and will the current yield be higher or lower than the yield to maturity?
Current Yield Current Yield vs. YTM
A)8.9% higher
B)8.9% lower
, C)9.1% higher - Answer 9.1% higher
A bond has a convexity of 51.44. What is the approximate percentage price change of the bond due to
convexity if rates rise by 150 basis points?
A)0.26%.
B)0.58%.
C)0.71%. - Answer 0.58%
An annual-pay bond is priced at 101.50. If its yield to maturity decreases 100 basis points, its price will
increase to 105.90. If its yield to maturity increases 100 basis points, its price will decrease to 97.30. The
bond's approximate modified convexity is closest to:
A)0.2.
B)19.7.
C)4.2. - Answer 19.7
An investor gathers the following information about a 2-year, annual-pay bond:
Par value of $1,000
Coupon of 4%
1-year spot interest rate is 2%
2-year spot interest rate is 5%
Using the above spot rates, the current price of the bond is closest to:
A)$983.
B)$1,000.
C)$1,010. - Answer $983
Consider a 25-year, $1,000 par semiannual-pay bond with a 7.5% coupon and a 9.25% YTM. Based on a
yield change of 50 basis points, the approximate modified duration of the bond is closest to:
A)10.03.
B)12.50.
C)8.73. - Answer 10.03
Answers To Pass.
The six-year spot rate is 7% and the five-year spot rate is 6%. The implied one-year forward rate five
years from now is closest to: - Answer 12.0%
Which of the following contains the overall rights of the bondholders?
A)Covenant.
B)Indenture.
C)Rights offering. - Answer Indenture
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. - Answer floating-rate note
An investor purchases a 4-year, 6%, semiannual-pay Treasury note for $9,485. The security has a par
value of $10,000. To realize a total return equal to 7.515% (its yield to maturity), all payments must be
reinvested at a return of:
A)more than 7.515%.
B)less than 7.515%.
C)7.515%. - Answer 7.515%
The price value of a basis point (PVBP) for a bond is most accurately described as:
A)the product of a bond's value and its duration.
B)an estimate of the curvature of the price-yield relationship for a small change in yield.
C)the change in the price of the bond when its yield changes by 0.01%. - Answer the change in the
price of the bond when its yield changes by 0.01%.
,Which of the following least likely represents a primary market offering? When bonds are sold:
A)from a dealer's inventory.
B)in a private placement.
C)on a best-efforts basis. - Answer from a dealer's inventory
The risk of receiving less than market value when selling a bond is referred to as:
A)recovery rate risk.
B)loss severity risk.
C)market liquidity risk. - Answer market liquidity risk
Securitization least likely benefits the financial system by:
A)increasing liquidity for mortgages and other loans.
B)increasing the amount banks are able to lend.
C)removing liabilities from bank balance sheets. - Answer removing liabilities from bank balance sheets
A non-callable bond has a modified duration of 7.26. Which of the following is the closest to the
approximate price change of the bond with a 25 basis point increase in rates?
A)1.820%.
B)-0.018%.
C)-1.820%. - Answer -1.820%
For a bond is trading at a discount, the current yield will most likely be:
A)higher than the yield to maturity.
B)the same as the yield to maturity.
C)lower than the yield to maturity. - Answer lower than the yield to maturity
In contrast with most asset-backed securities (ABS), a collateralized debt obligation (CDO):
A)employs a collateral manager.
,B)has senior and subordinate tranches.
C)is issued through a special purpose vehicle. - Answer employs a collateral manager
A company desiring to issue a fixed-income security has placed $10 million worth of loan receivables in a
special purpose entity (SPE) that is independent of the issuer. The credit rating agencies suggest the
company secure a third-party guarantee in order to have the security rated AAA. After completing the
transfer of assets to the SPE and obtaining a letter of credit from a national bank, the company issues the
AAA rated security. The securities are most likely:
A)commercial paper.
B)global bonds.
C)asset-backed securities. - Answer asset-backed securities
An investment advisor states, "An investor's annualized holding period return from investing in a bond
consists of three parts: the coupon interest payments, the return of principal, and any capital gain or loss
that the investor realizes on the bond." The advisor is:
A)correct.
B)incorrect, because these are not the only sources of return from investing in a bond.
C)incorrect, because an investor who holds a bond to maturity will not realize a capital gain or loss. -
Answer incorrect, because these are not the only sources of return from investing in a bond
If a Treasury bond has an annual modified duration of 10.27 and an annual convexity of 143, which of
the following is closest to the estimated percentage price change in the bond for a 125 basis point
increase in interest rates?
A)-11.72%.
B)-13.96%.
C)-9.33%. - Answer -11.72%
A $1,000 par value, 10%, semiannual, 20-year debenture bond is currently selling for $1,100. What is this
bond's current yield and will the current yield be higher or lower than the yield to maturity?
Current Yield Current Yield vs. YTM
A)8.9% higher
B)8.9% lower
, C)9.1% higher - Answer 9.1% higher
A bond has a convexity of 51.44. What is the approximate percentage price change of the bond due to
convexity if rates rise by 150 basis points?
A)0.26%.
B)0.58%.
C)0.71%. - Answer 0.58%
An annual-pay bond is priced at 101.50. If its yield to maturity decreases 100 basis points, its price will
increase to 105.90. If its yield to maturity increases 100 basis points, its price will decrease to 97.30. The
bond's approximate modified convexity is closest to:
A)0.2.
B)19.7.
C)4.2. - Answer 19.7
An investor gathers the following information about a 2-year, annual-pay bond:
Par value of $1,000
Coupon of 4%
1-year spot interest rate is 2%
2-year spot interest rate is 5%
Using the above spot rates, the current price of the bond is closest to:
A)$983.
B)$1,000.
C)$1,010. - Answer $983
Consider a 25-year, $1,000 par semiannual-pay bond with a 7.5% coupon and a 9.25% YTM. Based on a
yield change of 50 basis points, the approximate modified duration of the bond is closest to:
A)10.03.
B)12.50.
C)8.73. - Answer 10.03
