44 Free CFA Practice Exams Level 1 Questions and Answers on Fixed Income

Following are 44 Free CFA Practice Exams Level 1 Questions and Answers on Fixed Income for your smart and effective learning strategy. Those CFA exam questions and answers are packed with invaluable information to anyone who are planning to pursue their finance and investment career. They already implement an incredible function of touching all the corner of content on fixed income and stay tuned with the most updated knowledge in this topic. Additionally, they are geared towards the development of logical thinking in the nice format. As such, make sure to provide you with an amazing testing experience and CFA certification under your belt in the future. Take it to achieve an expected exam results and compare end-of-test answers with each other in the comment box below!
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Callable Bondsif interest rates go down or credit rating goes up, issuer wants ability to refinance at lower rate. Favors the issuer. Negative Convexity. Price goes down by the value of the call option, yield goes up. Bondholders are left with reinvestment risk.Options held by issuer reduce the value of the bondValue of a Non-callable Bond > Value of the Callable BondDifference is the value of the embedded call optionYield on a callable bond = Yield on non-callable + yield of the call optionLockout perio

• Bonds with Contingency Provisions1. IF an option favors the bond holder i.e. investor=> higher price, lower yieldPut the convertible on the floor => benefit the investorOtherwise favors the issues => reduces price and increases the yield
• Debt from the perspective of the investor, the bond holder
• Built in Loss and Built in Gain for Bonds
• Taxes on Zero Coupon Bonds at deep discount

TIPS treasury inflation protectoin securities. Coupon rate goes up when inflation goes up.

• Convertible Bond
• Securitized Bonds
• Index linked Bonds
• Secured BOnds

Securitized Risks are collateralized less riskNon-securitized - higher risk - higher rate

• Covered Bonds versus Securitized Bonds
• Securitized Bonds
• Secured BOnds
• Securitized versus Non Securitized

Not the issuerLower price, more risk, better profit

• Debt from the perspective of the investor, the bond holder
• Call and Convertible Bond
• Legal Identity of Issuer
• Built in Loss and Built in Gain for Bonds

- Convertible to stock- useful when the stock does well- conversion ratio = par value / strike price- conversion value = market value of the shares converted- conversion premium = price of convertible bond - price of conversion value- conversion parity = conversion value = no premium. above or below parity

• Puttable Bonds
• Amortizing Bond
• Convertible Bond
• Call and Convertible Bond

Floor (good for holder) or ceiling (good for investor)collared - floor and ceiling

• Variable Rate
• Coupon Rate
• Basic Feature
• Par Value

Contingent Convertible

• Eurobond
• CoCos
• YTM
• Issuer

- tax prorate gain or loss

• Built in Loss and Built in Gain for Bonds
• Call and Convertible Bond
• Index linked Bonds
• Covered Bonds versus Securitized Bonds

portion of the principal is repaid every yearcredit risk goes downinvestment risk goes up

• Credit enhancements
• Valuing Debt
• Sinking Fund arrangement
• Bonds with warrants

aka Face, Redemption, Maturity value- Principal- Bond price quoted as % of par- >100% = premium. Built-in loss. So coupon rate is below market - = 100% = par. coupon rate is same as market- <100% = discount, builit-in gain, coupon rate is above market

• Coupon Rate
• Eurobond
• Maturity
• Par Value

- longer term, greater risk- one year or less - money market security- more than one year - capital market security- perpetual

• YTM
• Maturity
• Issuer
• step up

- Receivables- AssetsBoth reduce in value when currency drops

• Coupon Rate
• Current Yield
• Currency Issues
• Issuer

-SPV that buys the loan from the originator- originator gets cash- SPC issues bonds to investors sto raise the capital- bond holder supply the money to the SPV- the loans are the collateralIf Bond Holders don't received P&I from SPC, the pool of loans is security for the debtCreditors of the Originators cannot seize the loansBondholders cannot seize the assets of the originator in the event the SPV is bankrupt- Usually amortized: payments include principal and interest. Lot of cash flow => reinvestment r

• Securitized Bonds
• Index linked Bonds
• Secured BOnds
• Puttable Bonds

Issuer, maturity, par value, coupon rate and frequency, currency

• Par Value
• Bond Indenture
• Debentures
• Basic Feature

...

• Amortizing Bond
• Current Yield
• Bullet Bond
• PIK payment in kind

- issued simultaneously in different parts of the world- legal and tax consequences

• Secured BOnds
• Bullet Bond
• Puttable Bonds
• Global Bonds

Entire principal paid only at maturityhigher credit risk

• Bullet Bond
• Secured BOnds
• Eurobond
• Global Bonds