cfa FI

A bond has the following characteristics: Maturity of 30 years Modified duration of 16.9 years Yield to maturity of 6.5% If the yield to maturity decreases by 0.75%, what will be the percentage change in the bond's price?

+12.675%

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?

-11.72%

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?

0.58%

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:

0.84

Today an investor purchases a $1,000 face value, 10%, 20-year, semi-annual bond at a discount for $900. He wants to sell the bond in 6 years when he estimates the yields will be 9%. What is the estimate of the future price?

1,079

An investor purchased a 6-year annual interest coupon bond one year ago. The coupon rate of interest was 10% and par value was $1,000. At the time she purchased the bond, the yield to maturity was 8%. The amount paid for this bond one year ago was:

1,092.46

Which of the following bonds has the shortest duration? A bond with a:

10 year maturity, 10% coupon rate

A 20-year, 9% semi-annual coupon bond selling for $914.20 offers a yield to maturity of:

10%

The 3-year annual spot rate is 7%, the 4-year annual spot rate is 7.5%, and the 5-year annual spot rate is 8%. The 1-year forward rate four years from now is closest to:

10%

Consider a bond selling for $1,150. This bond has 28 years to maturity, pays a 12% annual coupon, and is callable in 8 years for $1,100. The yield to call is closest to:

10.05%

A 12% coupon bond with semiannual payments is callable in 5 years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield-to-call?

10.95%

Using the following spot rates for pricing the bond, what is the present value of a three-year security that pays a fixed annual coupon of 6%? Year 1: 5.0% Year 2: 5.5% Year 3: 6.0%

100.10

Assume that a callable bond's call period starts two years from now with a call price of $102.50. Also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. Which of the following is the price of the bond assuming that it is called on the first call date?

103.17

A 20-year, $1,000 face value, 10% semi-annual coupon bond is selling for $875. The bond's yield to maturity is:

11.62%

The 3-year spot rate is 10%, and the 4-year spot rate is 10.5%. What is the 1-year forward rate 3 years from now?

12%

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:

12.0%

A semiannual-pay bond is callable in five years at $1,080. The bond has an 8% coupon and 15 years to maturity. If an investor pays $895 for the bond today, the yield to call is closest to:

12.1%

An investor holds $100,000 (par value) worth of TIPS currently trading at par. The coupon rate of 4% is paid semiannually, and the annual inflation rate is 2.5%. What coupon payment will the investor receive at the end of the first six months?

2,025

The most appropriate reference rate for a one-year, U.S. dollar denominated, floating-rate note that resets monthly is:

30-day LIBOR

To determine the full price of a corporate bond, a dealer is most likely to calculate accrued interest based on:

30-day months and 360-day years

An investor finds that for a 1% increase in yield to maturity, a bond's price will decrease by 4.21% compared to a 4.45% increase in value for a 1% decline in YTM. If the bond is currently trading at par value, the bond's approximate modified duration is closest to:

4.33

Consider a bond with modified duration of 5.61 and convexity of 43.84. Which of the following is closest to the estimated percentage price change in the bond for a 75 basis point decrease in interest rates?

4.33%

An investor wants to take advantage of the 5-year spot rate, currently at a level of 4.0%. Unfortunately, the investor just invested all of his funds in a 2-year bond with a yield of 3.2%. The investor contacts his broker, who tells him that in two years he can purchase a 3-year bond and end up with the same return currently offered on the 5-year bond. What 3-year forward rate beginning two years from now will allow the investor to earn a return equivalent to the 5-year spot rate?

4.5%

Becque Ltd. is a European Union company with the following selected financial information: € billionsYear 1Year 2Year 3Operating income262361503Depreciation & amortization201212256Capital expenditures7897140Cash flow from operations303466361Total debt2,5902,7172,650Dividends707072 Becque's three-year average debt-to-EBITDA ratio is closest to:

4.6x

For a given bond, the duration is 8 and the convexity is 100. For a 60 basis point decrease in yield, what is the approximate percentage price change of the bond?

4.98%

Given that the two-year spot rate is 5.89% and the one-year forward rate one-year from now is 6.05%, assuming annual compounding what is the one year spot rate?

5.73%

Every six months a bond pays coupon interest equal to 3% of its par value. This bond is a:

6% semiannual coupon bond

Given the one-year spot rate S1 = 0.06 and the implied 1-year forward rates one, two, and three years from now of: 1y1y = 0.062; 2y1y = 0.063; 3y1y = 0.065, what is the theoretical 4-year spot rate?

6.25%

An investor buys a pure-discount note that matures in 146 days for $971. The bond-equivalent yield is closest to:

7.5%

Consider a 5-year, semiannual, 10% coupon bond with a maturity value of 1,000 selling for $1,081.11. The first call date is 3 years from now and the call price is $1,030. What is the yield-to-call?

7.82%

A zero-coupon bond matures three years from today, has a par value of $1,000 and a yield to maturity of 8.5% (assuming semi-annual compounding). What is the current value of this issue?

779.01

A 20-year, 9% annual coupon bond selling for $1,098.96 offers a yield of:

8%

A 15-year, 10% annual coupon bond is sold for $1,150. It can be called at the end of 5 years for $1,100. What is the bond's yield to call (YTC)?

8.0%

Given that the one-year spot rate is 6.05% and the two-year spot rate is 7.32%, assuming annual compounding what is the one-year forward rate starting one year from now?

8.61%

An investor purchases a $1,000 5% coupon bond with quarterly coupon payments that matures in 12 years and has a yield to maturity of 7.0%. The price the investor pays is closest to:

838.53

A 2-year option-free bond (par value of $10,000) has an annual coupon of 15%. An investor determines that the spot rate of year 1 is 16% and the year 2 spot rate is 17%. The bond price is closest to:

9,694

An analyst collects the following information regarding spot rates: 1-year rate = 4%. 2-year rate = 5%. 3-year rate = 6%. 4-year rate = 7%. The 2-year forward rate two years from today is closest to:

9.04%

Using the following spot rates, what is the price of a three-year bond with annual coupon payments of 5%? One-year rate: 4.78% Two-year rate: 5.56% Three-year rate: 5.98%

97.47

An investor gathered the following information on two U.S. corporate bonds: Bond J is callable with maturity of 5 years Bond J has a par value of $10,000 Bond M is option-free with a maturity of 5 years Bond M has a par value of $1,000 For each bond, which duration calculation should be applied?

Bond J: effective duration Bond M: modified or effective duration

Which of the following statements regarding the risks inherent in bonds is most accurate?

Default risk deals with the likelihood that the issuer will fail to meet its obligations as specified in the indenture.

A UK 12-year corporate bond with a 4.25% coupon is priced at £107.30. This bond's duration and convexity are 9.5 and 107.2. If the bond's yield decreases by 125 basis points, the estimated price of the bond is closest to:

E 120.95

A $1,000 par value note is priced at an annualized discount of 1.5% based on a 360-day year and has 150 days to maturity. The note will have a bond equivalent yield that is:

Higher than 1.5

Jequa is a Japanese company with the following selected financial information: ¥ billionsNet income from continuing operations503Depreciation & amortization256Capital expenditures140Cash flow from operations361Dividends72 Jequa's funds from operations (FFO) is closest to:

Y 759 Billion

A repurchase agreement is described as a "reverse repo" if:

a bond dealer is the lender

A non-amortizing fixed income security is most accurately described as:

a bullet bond

A covered bond that is in default if the issuer fails to make a scheduled payment is:

a hard-bullet covered bond

All else being equal, which of the following bond characteristics most likely results in less reinvestment risk?

a shorter maturity

A covered bond that may postpone the originally scheduled maturity date by as much as a year to delay default is:

a soft bullet covered bond

Which of the following adjustments is most likely to be made to the day count convention when calculating corporate bond yield spreads to government bond yields?

adjust the corporate bond yield to actual months and years

A bond whose periodic payments are all equal is said to have a(n):

amortizing structure

Which of the following is least likely an example of an external credit enhancement?

an excess spread account

Annual Macaulay duration is least accurately interpreted as the:

approximate percentage change in a bond's value for a 1% change in its yield to maturity.

An investor buys a bond that has a Macaulay duration of 3.0 and a yield to maturity of 4.5%. The investor plans to sell the bond after three years. If the yield curve has a parallel downward shift of 100 basis points immediately after the investor buys the bond, her annualized horizon return is most likely to be:

approximately 4.5%

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:

asset-backed securities

Which of the following statements concerning the price volatility of bonds is most accurate?

bonds with higher coupons have lower interest rate risk

Negative convexity is most likely to be observed in:

callable bonds

An investor pays $100,000 for a security that consists of a zero-coupon bond that will pay $90,000 in three months and $11,000 worth of call options on an equity index that expire in three months. This security is most accurately described as a:

capital protected instrument

Treasury Inflation Protected Securities, which provide investors with protection against inflation by adjusting the par value and keeping the coupon rate fixed, are best described as:

capital-indexed bonds

An annualized measure of the prepayments experienced by a pool of mortgages is its:

conditional prepayment rate

PRC International just completed a $234 million floating rate convertible bond offering. As stated in the indenture, the interest rate on the bond is the lesser of 90-day LIBOR or 10%. The indenture also requires PRC to retire $5.6 million per year with the option to retire as much as $10 million. Which of the following embedded options is most likely to benefit the investor? The:

conversion option on the convertible bonds

Which of the following classes of asset-backed securities typically includes a lockout period?

credit card abs

Jayce Arnold, a CFA candidate, considers a $1,000 face value, option-free bond issued at par. Which of the following statements about the bond's dollar price behavior is most likely accurate when yields rise and fall by 200 basis points, respectively? Price will:

decrease by 124, price will increase by 149

For an option-free bond, as the yield to maturity increases, the bond price:

decreases at a decreasing rate

Compared to corporate bonds with the same credit ratings, municipal general obligation (GO) bonds typically have less credit risk because:

default rates on GOs are typically lower for same credit ratings

The appropriate measure of interest rate sensitivity for bonds with an embedded option is:

effective duration

If the yield curve is downward-sloping, the no-arbitrage value of a bond calculated using spot rates will be:

equal to the market price of the bond

Which of the following securities is least likely classified as a eurobond? A bond that is denominated in:

euros and issued in Germany

Which of the following best describes risks in relying on credit agency ratings?

event risk is difficult for rating agencies to assess

Which of the following least likely represents a primary market offering? When bonds are sold:

from a dealer's inventory

An investor who is calculating the arbitrage-free value of a government security should discount each cash flow using the:

government spot rate that is specific to its maturity

Which of the following statements regarding repurchase agreements is most accurate?

greater demand for the underlying security results in lower repo margin

Structural subordination means that a parent company's debt:

has a lower priority of claims to a subsidiary's cash flows than the subsidiary's debt

A mortgage is most attractive to a lender if the loan:

has a prepayment penalty

When evaluating the loans backing a commercial mortgage-backed security based on credit ratios, which of the following most likely indicate better credit quality?

higher debt-service coverage ratios and lower loan-to-value ratios

A bond's indenture least likely specifies the:

identity of the lender

All else equal, which of the following is least likely to increase the interest rate risk of a bond?

inclusion of a call feature

Which of the following embedded bond options tends to benefit the borrower?

interest rate cap

For a callable bond, the option-adjusted spread (OAS):

is less than the zero-volatility spread

Compared to a bond's Macaulay duration, its modified duration:

is lower

A mortgage-backed security has a pass-through rate of 4.3%. The average interest rate on its underlying pool of mortgages is 4.5%. The difference between these rates is most likely due to:

issuance and servicing costs

To reduce the cost of long-term borrowing, a corporation with a below average credit rating could:

issue securitized bonds

Which of the following is least likely an advantage of estimating the duration of a bond portfolio as a weighted average of the durations of the bonds in the portfolio?

it is theoretically more sound than the alternative

Which of the following duration measures is most appropriate if an analyst expects a non-parallel shift in the yield curve?

key rate duration

A fixed coupon callable bond issued by Protohype Inc. is trading with a yield to maturity of 6.4%. Compared to this YTM, the bond's option-adjusted yield will be:

lower

Which of the following describes the yield to worst? The:

lowest of all possible yields to call

The risk of receiving less than market value when selling a bond is referred to as:

market liquidity risk

A sequential-pay CMO has two tranches. Principal is paid to Tranche S until it is paid off, after which principal is paid to Tranche R. Compared to Tranche R, Tranche S has:

more contraction risk and less extension risk

Which of the following fixed income securities is classified as a money market security?

newly issued security that will mature in one year

Which of the following bond covenants is considered negative?

no additional debt

A step-up coupon bond is structured such that its coupon rate increases:

on a predetermined schedule

A bond with a 12% annual coupon, 10 years to maturity and selling at 88 percent of par has a yield to maturity of:

over 14%

A purchase of a new bond issue by a single investor is most accurately described as a(n):

private placement

An interpolated spread (I-spread) for a bond is a yield spread relative to:

swap rates

If a U.S. investor is forecasting that the yield spread between U.S. Treasury bonds and U.S. corporate bonds is going to widen, then which of the following is most likely to be CORRECT?

the economy is going to contract

If the discount margin is lower than the quoted margin on a floating rate note, it is most likely that:

the note's credit quality has improved

Adjusting for convexity improves an estimated price change for a bond compared to using duration alone because:

the slope of the price/yield curve is not constant

Asset-backed securities (ABS) may have a higher credit rating than the seller's corporate bonds because:

they are issued by a special purpose entity

Yield spreads tend to widen when equity market performance is:

weak

If investors expect greater uncertainty in the bond markets, yield spreads between AAA and B rated bonds are most likely to:

widen

A single yield used to discount all of a bond's cash flows when calculating its price is most accurately described as the bond's:

yield to maturity