20 CFA Level 3 Practice Exams 2015 Questions with Instant Answers on Fixed Income

Breeze through the next CFA exam by taking 20 CFA Level 3 Practice Exams 2015 Questions with Instant Answers on Fixed Income. Under the exam-like environment, an array of multiple choice questions with instant answers will help you achieve higher grades in this topic due to improvement of essential skills. As a result, this practical free CFA sample exam assists test-takers with poor grounding of this topic area to become full-fledged before taking the actual exam. Moreover, free instant answers to questions are completely clear and easy-to-understand so that you can evaluate your own performance exactly. Start your CFA preparation early as possible to attain all the basic concepts and application. Remember to share your ideas in the comment below!
To view full questions and answers, please kindly visit our site: http://cfaexampreparation.com/935/20-cfa-level-3-practice-exams-2015-questions-with-instant-answers-on-fixed-income/

the underlying security in the futures contract is not identical to the asset being hedged

• tracking error
• price basis
• swap spreads
• cross hedge

measures the portfolio's sensitivity to twists in the yield curve

• tracking error
• repurchase agreement
• key rate duration
• price basis

1. Select a bond with an effective duration equal to the duration of the liability2. Set the PV of the bond equal to the PV of the portfolio

• immunization risk
• to effectively immunize a single liability
• name the five bond indexing strategies
• classical immunization

- Measure of the relative extent to which the terminal value of an immunized portfolio falls short of its target value as a result of nonparallel changes in interest rates- Portfolios that have the lowest levels of reinvestment risk will do the best job of immunization

• contingent claim risk
• immunization barbell strategy
• price basis
• immunization risk

1. pure bond indexing2. enhanced indexing by matching primary risk factors3. enhanced indexing by small risk factor mismatches4. active management by larger risk factor mismatches5. full-blown active management

• immunization bullet strategy
• name the five bond indexing strategies
• immunization barbell strategy
• cyclical bond changes

1. market value risk - varies directly with maturity2. income risk - the more dependent on income, the longer the maturity profile3. credit risk - credit risk of benchmark/portfolio should be similar4. liability framework risk - mismatches in the firm's asset/liability structure

• to effectively immunize a single liability
• change in price for break even analysis
• name the five bond indexing strategies
• What are the four primary considerations when selecting a benchmark?

measures the effect of changes in only one variable - the others are held constant

• sensitivity analysis
• immunization risk
• price basis
• contingent claim risk

- First level of indexing designed to earn about the same return as the index- Maintain exposure to large risk factors (duration) and pursue relative value strategies

• name the five bond indexing strategies
• enhanced indexing by small risk factor mismatches
• active management by larger risk factor mismatches
• change in price for break even analysis

the standard deviation of alpha across several periods

• swap spreads
• tracking error
• price basis
• cross hedge

concentrating the maturities of the bonds around the liability date

• immunization bullet strategy
• key rate duration
• immunization barbell strategy
• immunization risk

change in price = -duration x breakeven yield change

• name the five bond indexing strategies
• price basis
• sensitivity analysis
• change in price for break even analysis

- a collateralized loan, where the difference between the sale and repurchase prices is the interest on the loan- the lender in a repurchase agreement is exposed to credit risk, if the collateral remains in the borrower's custody

• key rate duration
• repurchase agreement
• cross hedge
• tracking error

- price risk and reinvestment risk exactly offset each other- standard condition is risk minimization

• key rate duration
• immunization risk
• cyclical bond changes
• classical immunization

1. default risk2. credit spread risk3. downgrade risk

• What are the four primary considerations when selecting a benchmark?
• three principal credit-related risks that can be addressed with credit derivative instruments
• to effectively immunize a single liability
• name the five bond indexing strategies

a swap spread is the spread paid by the fixed-rate payer over the rate on the on-the-run Treasury with the same maturity as the swap

• swap spreads
• price basis
• tracking error
• cross hedge

the first bond matures several years before the liability date and the other several years after the liability date

• immunization bullet strategy
• key rate duration
• immunization barbell strategy
• immunization risk

call risk or prepayment risk

• sensitivity analysis
• price basis
• immunization risk
• contingent claim risk

increases in the number of new bond issues are sometimes associated with narrower spreads and relatively strong returns

• classical immunization
• cross hedge
• price basis
• cyclical bond changes

spot (cash) price - futures price at delivery

• swap spreads
• cross hedge
• tracking error
• price basis