28 Free CFA Level 1 Mock Exam Questions and Answers on Fixed Income

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[(V-)-(V+)]/2(Vo)DeltaY. This is duration for bonds with embedded options. Vx= value of bond at certain times

• duration (equation)
• yield ratio
• effective duration
• positive convexity

there are different S + D curves for each maturity. this yield graph is the linear graph of their market equilibriums

• pure expectations theory
• duration (equation)
• effective duration
• market segmentation theory

Bills-28,91, and 182 days. Notes-2,3,5 and 10 years. Bonds-20 or 30 years

• relative spread yield
• effective duration
• duration (equation)
• treasury securities (maturities)

changing an annual yield to a semi-annual yield. if another time frame, will say. [(1+i)^1/n-1]*n

• bond equivalent basis
• debentures
• non-refundable bond
• effective duration

things a borrower MUST do (keep certain financial ratios, timely payment....)

• negative covenants
• positive covenants
• effective duration
• positive convexity

securities that are not backed by collateral

• debentures
• MTN
• MBS
• YTM

Annual cash coup pmts/bond price

• after tax yield
• yield ratio
• current yield
• debentures

investors prefer more liquidity. therefore, longer term notes pay higher premiums to satisfy this.

• market segmentation theory
• pure expectations theory
• liquidity preference theory
• current yield

nominal difference between yields. A - B = C. stated in basis points, most commonly used

• zero volatility spread
• absolute yield spread
• after tax yield
• current yield

is curved towards the origin. means it increases more when yield falls than it decreases when yields rise

• negative covenants
• positive convexity
• effective duration
• positive covenants

higher duration means there is a wider margin of outcomes regarding interest rate. anything that lowers this, lowers the duration. any type of cap or restriction

• effective duration
• duration (equation)
• duration (explanation)
• negative covenants

medium-term notes. can be created and registered, then put on a "shelf" to be sold later

• YTM
• MTN
• MBS
• debentures

periodic revaluation

• current yield
• marking-to-market
• debentures
• MTN

when a lender cant, for whatever reason, invest in a certain security, so a FIS is hitched to an index or equity stock. almost like a floating-rate bond

• debentures
• yield ratio
• MTN
• structured note

things a borrower CANNOT do. (Pledge the same collateral to a different lender, sell certain assets....)

• relative spread yield
• positive covenants
• negative covenants
• positive convexity

taxable yield(1 - marginal tax rate)

• yield ratio
• current yield
• relative spread yield
• after tax yield

[(%change in bond price)/nominal change in yield]*(-1)

• effective duration
• duration (equation)
• yield ratio
• duration (explanation)

long term yields are averages of what short term yields are expected to be in the future. expected short term drives long term

• pure expectations theory
• liquidity preference theory
• market segmentation theory
• current yield

mortgage backed securities

• MBS
• debentures
• MTN
• YTM

quoted in % and 32s. example 102-5=102% of par plus 5/32

• liquidity preference theory
• treasury securities (maturities)
• pricing of treasure bonds and notes in secondary market
• non-refundable bond

amount, in basis points, of difference between what a security is selling for and a similar US Treasury

• relative spread yield
• after tax yield
• absolute yield spread
• zero volatility spread

the process of using current spot rates to determine future spot rates. Is an IRR equation

• yield ratio
• bootstrapping
• MBS
• MTN

cannot call an issue using proceeds from a lower coupon issue. cant simply refinance using lower rates.

• non-refundable bond
• bond equivalent basis
• structured note
• current yield

absolute yield spread/yield on benchmark bond

• negative covenants
• current yield
• after tax yield
• relative spread yield

yield to maturity. is an annualized IRR, based on a bonds price and its promised cash flows. if coupons are semi annual, multiply by 2, etc

• YTM
• yield ratio
• MBS
• MTN

subject bond yield/benchmark bond yield

• yield ratio
• bootstrapping
• yield curve shift
• YTM

if the yield curve shifts any way that is not parallel, it cannot be captured by duration.

• yield ratio
• effective duration
• debentures
• yield curve shift

amount in dollars that must be generated from the reinvestment income to reach a certain yield at maturity

• required reinvestment income for a bond
• effective duration
• liquidity preference theory
• pure expectations theory