222 Most Common CFA Level 1 Exam Questions Free with Answers on Fixed Income-Part 1

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Actual/365 convention is the same as the actual/360, except that it uses 365 as the denominator. This is used when pricing U.S. government Treasury Bonds.

• 30/360Day Count Convention
• MaturityRelationship to Duration
• Day Count Convention
• Actual/365Day Count Convention

Less Certain Cash Flow, Cap on price appreciation, Reinvestment risk.

• Taxable-Equivalent Yield
• Basic Bond Pricing
• Collateral Trust Bonds
• Callable Bond Disadvantages

Cpn Rate = Current Yld = YTMCpn Rate = required mkt yld, then bd price = par value.

• MBS
• Par Value
• Par Bond
• T-Bonds

A floating-rate security will be much less sensitive to changes in market yields than a fixed-coupon bond of equal maturity and thus lesser duration.

• Floating-Rate Security Sensitivity and Market Yields
• Most common Day Counts Used in Bond Markets
• Annual Equivalent Yield
• FED Interest Rate Tools

1) Convexity is a measure of the curvature of the price-yield curve. The more curved the price-yield relation is, the greater the convexity.2) A straight line has a convexity of zero. If the price-yield curve were, in fact, a straight line, the convexity would be zero.3) The reason we care about convexity is that the more curved the price-yield relation is the worse our duration-based estimates of bond price changes in response to changes in yield are. The greater the convexity the greater the error in pric

• Credit Spreads
• Convexity Effect
• Inverse Floater
• Liquidity Risk

Contract that specifies all the rights and obligations of the issuer and owners of a fixed income security.

• Par Value
• Bond Indenture
• Coupon Rate
• Bond Option Cost

AEY = [1 + (YTM/2)]^2 - 1ORAEY = [1 + (BEY/2)]^2 - 1

• Current Yield
• Bond Equivalent Yield (BEY)
• Bond Indenture
• Annual Equivalent Yield

current yield = annual cpn pmt / bd price

• Current Yield
• Coupon Rate
• After-Tax Yield
• Event Risk

BEY of an annual-pay bondBEY = [(1 + annual YTM)^1/2 - 1] * 2

• Bond Equivalent Yield (BEY)
• Relative Yield Spread
• Absolute Yield Spread
• Current Yield

1) Three maturity cycles - 4 weeks, 1 month & 3 Months2) Carry No Coupon & sold at discount

• T-Bonds
• T-Bills
• MBS
• Z-Spread

Better described as "unexpected" inflation risk or purchasing power risk.

• Prepayment Risk
• Inflation Risk
• Call Risk
• Sovereign Risk

Interest rate risk and duration decreases.

• Interest Rate Risk and Bond Features(Deep Discount Bonds 1)
• Discounted Cash FlowCalculations
• Variable Rate Bond Interest Rate Risk
• Effect on interest rate risk and durationCoupon Increases

Bond traded with next coupon attached.

• Collateral Trust Bonds
• Discount Bond
• Cumulative Coupon Bond
• Zero-Coupon Bonds

(1) Default Risk(2) Credit Spread Risk(3) Downgrade Risk

• Interest Rate Risk
• Credit RiskThree Types
• Reinvestment Risk
• Amortizing Securities

Risk associated with fixed-income securities that have embedded options, such as call options, prepayment options, or put options. Changes in interest rate volatility affect the value of these options.

• Reinvestment Risk
• Default Risk
• Liquidity Risk
• Volatility Risk

Duration

• What does a bond's duration tell us?
• Bond PricingTwo Methods to Price a Bond
• What measure approximates the interest rate risk on bonds?
• Type of Structured Medium Term Notes