CFA Exam Prep Fixed Income Study
Guide Exam And Actual Answers.
An affirmative covenant is most likely to stipulate:
A.) limits on the issuer's leverage ratio.
B.) how the proceeds of the bond issue will be used.
C.) the maximum percentage of the issuer's gross assets that can be sold. - Answer B is correct
. Affirmative (or positive) covenants enumerate what issuers are required to do and are typically
administrative in nature. A common affirmative covenant describes what the issuer intends to do with
the proceeds from the bond issue.
Which of the following best describes a negative bond covenant? The issuer is:
A.) required to pay taxes as they come due.
B.) prohibited from investing in risky projects.
C.) required to maintain its current lines of business. - Answer B is correct.
Prohibiting the issuer from investing in risky projects restricts the issuer's potential business decisions.
These restrictions are referred to as negative bond covenants.
Relative to domestic and foreign bonds, Eurobonds are most likely to be:
A.) bearer bonds.
B.) registered bonds.
C.) subject to greater regulation. - Answer A is correct
Bearer bonds are ones in which the trustee does not keep records of ownership.
,Relative to an otherwise similar option-free bond, a:
A.) putable bond will trade at a higher price.
B.) callable bond will trade at a higher price.
C.) convertible bond will trade at a lower price. - Answer A is correct. A put feature is beneficial to the
bondholders. Thus, the price of a putable bond will typically be higher than the price of an otherwise
similar non-putable bond.
The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the
bondholders can be best described as a bond's:
A.) covenant.
B.) indenture.
C.) debenture. - Answer B is correct.
The indenture, also referred to as trust deed, is the legal contract that describes the form of the bond,
the obligations of the issuer, and the rights of the bondholders.
In most countries, the bond market sector with the smallest amount of bonds outstanding is most likely
the:
A.) government sector.
B.) financial corporate sector.
C.) non-financial corporate sector. - Answer C is correct.
In most countries, the largest issuers of bonds are the national and local governments as well as financial
institutions.
When classified by type of issuer, asset-backed securities are part of the:
A.) corporate sector.
,B.) structured finance sector.
C.) government and government-related sector. - Answer B
With respect to floating-rate bonds, a reference rate such as the London interbank offered rate (Libor) is
most likely used to determine the bond's:
A.) spread.
B.) coupon rate.
C.) frequency of coupon payments. - Answer B is correct
The coupon rate of a floating-rate bond is expressed as a reference rate plus a spread.
Which of the following statements is most accurate? An interbank offered rate:
A.) is a single reference rate.
B.) applies to borrowing periods of up to 10 years.
C.) is used as a reference rate for interest rate swaps. - Answer C
Interbank offered rates are used as reference rates not only for floating-rate bonds, but also for other
debt instruments including mortgages, derivatives such as interest rate and currency swaps, and many
other financial contracts and products
Which of the following describes privately placed bonds?
A.) They are non-underwritten and unregistered.
B.) They usually have active secondary markets.
C.) They are less customized than publicly offered bonds. - Answer A is correct.
Private placements are typically non-underwritten,
, unregistered offering of bonds that are not sold to the general public but directly to an investor or a
small group of investors.
A bond market in which a communications network matches buy and sell orders initiated from various
locations is best described as an:
A.) organized exchange.
B.) open market operation.
C.) over-the-counter market. - Answer C is correct
Sovereign bonds are best described as:
A.) bonds issued by local governments.
B.) secured obligations of a national government.
C.) bonds backed by the taxing authority of a national government. - Answer C is correct
The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is
bestdescribed as a:
A.) sovereign bond.
B.) supranational bond.
C.) quasi-government bond. - Answer B
When issuing debt, a company may use a sinking fund arrangement as a means of reducing:
A.) credit risk.
B.) inflation risk.
C.) interest rate risk. - Answer A
The repo margin is:
Guide Exam And Actual Answers.
An affirmative covenant is most likely to stipulate:
A.) limits on the issuer's leverage ratio.
B.) how the proceeds of the bond issue will be used.
C.) the maximum percentage of the issuer's gross assets that can be sold. - Answer B is correct
. Affirmative (or positive) covenants enumerate what issuers are required to do and are typically
administrative in nature. A common affirmative covenant describes what the issuer intends to do with
the proceeds from the bond issue.
Which of the following best describes a negative bond covenant? The issuer is:
A.) required to pay taxes as they come due.
B.) prohibited from investing in risky projects.
C.) required to maintain its current lines of business. - Answer B is correct.
Prohibiting the issuer from investing in risky projects restricts the issuer's potential business decisions.
These restrictions are referred to as negative bond covenants.
Relative to domestic and foreign bonds, Eurobonds are most likely to be:
A.) bearer bonds.
B.) registered bonds.
C.) subject to greater regulation. - Answer A is correct
Bearer bonds are ones in which the trustee does not keep records of ownership.
,Relative to an otherwise similar option-free bond, a:
A.) putable bond will trade at a higher price.
B.) callable bond will trade at a higher price.
C.) convertible bond will trade at a lower price. - Answer A is correct. A put feature is beneficial to the
bondholders. Thus, the price of a putable bond will typically be higher than the price of an otherwise
similar non-putable bond.
The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the
bondholders can be best described as a bond's:
A.) covenant.
B.) indenture.
C.) debenture. - Answer B is correct.
The indenture, also referred to as trust deed, is the legal contract that describes the form of the bond,
the obligations of the issuer, and the rights of the bondholders.
In most countries, the bond market sector with the smallest amount of bonds outstanding is most likely
the:
A.) government sector.
B.) financial corporate sector.
C.) non-financial corporate sector. - Answer C is correct.
In most countries, the largest issuers of bonds are the national and local governments as well as financial
institutions.
When classified by type of issuer, asset-backed securities are part of the:
A.) corporate sector.
,B.) structured finance sector.
C.) government and government-related sector. - Answer B
With respect to floating-rate bonds, a reference rate such as the London interbank offered rate (Libor) is
most likely used to determine the bond's:
A.) spread.
B.) coupon rate.
C.) frequency of coupon payments. - Answer B is correct
The coupon rate of a floating-rate bond is expressed as a reference rate plus a spread.
Which of the following statements is most accurate? An interbank offered rate:
A.) is a single reference rate.
B.) applies to borrowing periods of up to 10 years.
C.) is used as a reference rate for interest rate swaps. - Answer C
Interbank offered rates are used as reference rates not only for floating-rate bonds, but also for other
debt instruments including mortgages, derivatives such as interest rate and currency swaps, and many
other financial contracts and products
Which of the following describes privately placed bonds?
A.) They are non-underwritten and unregistered.
B.) They usually have active secondary markets.
C.) They are less customized than publicly offered bonds. - Answer A is correct.
Private placements are typically non-underwritten,
, unregistered offering of bonds that are not sold to the general public but directly to an investor or a
small group of investors.
A bond market in which a communications network matches buy and sell orders initiated from various
locations is best described as an:
A.) organized exchange.
B.) open market operation.
C.) over-the-counter market. - Answer C is correct
Sovereign bonds are best described as:
A.) bonds issued by local governments.
B.) secured obligations of a national government.
C.) bonds backed by the taxing authority of a national government. - Answer C is correct
The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is
bestdescribed as a:
A.) sovereign bond.
B.) supranational bond.
C.) quasi-government bond. - Answer B
When issuing debt, a company may use a sinking fund arrangement as a means of reducing:
A.) credit risk.
B.) inflation risk.
C.) interest rate risk. - Answer A
The repo margin is:
