20 CFA Level 3 Practice Exams Free Questions and Answers on Fixed Income

20 CFA Level 3 Practice Exams Free Questions and Answers on Fixed Income has an emphasis on a basic understanding of key concepts which is obviously important in this topic and polish up your critical thinking skill. By testing on a set of CFA practice questions free with fast responsive answers, key concepts and their application into real situations will be showcased clearly and comfortable for test-takers’ retention. You will be surprised at how quickly you are able to understand complex concepts and how trouble-freely you can tackle with all the difficult questions in the exam. Let’s work out all the following questions and explore how you can score well in the test. Highly appreciate if you can leave your ideas in the box below!
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the underlying security in the futures contract is not identical to the asset being hedged

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

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

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

change in price = -duration x breakeven yield change

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

spot (cash) price - futures price at delivery

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

concentrating the maturities of the bonds around the liability date

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

1. default risk2. credit spread risk3. downgrade risk

• three principal credit-related risks that can be addressed with credit derivative instruments
• name the five bond indexing strategies
• active management by larger risk factor mismatches
• What are the four primary considerations when selecting a benchmark?

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

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

- 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

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

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

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

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

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

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

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

the standard deviation of alpha across several periods

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

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

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

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

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

- 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

• repurchase agreement
• cross hedge
• key rate duration
• swap spreads

- 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

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