33 Free Sample Level 1 CFA Exam Questions and Answers on Fixed Income

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a protective put establishes a minimum value for the position when the price of the underlying stock declines, a covered call does not

• covered call
• Repo duration
• historical analysis
• crossover sector

- heavy supply of new issuance (investment grade) will help spreads contract and enhance return because new primary bond valuations validate and enhance secondary valuations; otherwise, the secondary market lose confirmation

• implication of the supply of investment grade issuance
• crossover sector investment
• Duration of sample leverage portfolio
• limitation of yield pick-up trade

- affecting spread and ability to trade

• Market segmentation
• Repo duration
• liquidity consideration
• 3 kinds of spread duration

- An indexer (full replication approach) or enhanced indexer would keep the duration matched to the index.

• crossover sector investment
• new issuance and spread
• passive vs active fixed income PM
• negative key rate duration of MBS

- can use the entire fixed-income portfolio for active management until the portfolio drops below the safety net level or the terminal value

• contingent immunization
• contingent immunization defined
• Market segmentation
• Spread duration change

- it means factors affecting supply and demand within sectors of bond market due to impediments or restrictions on investors from reallocating funds across those bond sectors

• contingent immunization
• Market segmentation
• Repo duration
• crossover sector

- OAS use is limited because default risk is excluded from calculation

• new issuance and spread
• OAS assumption on default risk
• Risk measurement of managers
• liquidity consideration

- one can purchase a high yield issue, when upgraded, the spread will narrow, resulting in higher liquidity and outperformance

• covered call
• Market segmentation
• crossover sector
• crossover sector investment

- news issues result result in tightening of spreads and decrease of relative yields

• Market segmentation
• historical analysis
• primary market analysis
• covered call

Spread duration measures used for fixed rate bonds include the nominal spread, zero-volatility spread, and option-adjusted spread (OAS).

• Repo duration
• 3 kinds of spread duration
• hedged return calculation
• liquidity consideration