QUESTIONS 43-48 RELATE TO FIXED INCOME PORTFOLIO MANAGEMENT. QUESTIONS...

39,694 = 71,972, which means that 3,150,000 - 71,972 = 3,078,028 of the March 2020

liability must still be funded.

The par value bought of the March 2020 bond will be:

Par

Mar20

= 3,078,028 ÷ (1 + (0.0225/2)) = 3,043,785

For Further Reference:

Study Session 10, LOS 22.c, d, e

SchweserNotes: Book 3 p.253, 259, 265

CFA Program Curriculum: Vol.4 p.64, 78, 88

Question #48 of 60

Bradley should classify the Qual-Mart fixed-to-floating rate notes as:

A) type I liabilities.

B) type II liabilities.

C) type III liabilities.

The classification scheme is:

Liability Type Amount of Cash

Outlay Timing of Cash Outlay

I Known Known

II Known Uncertain

III Uncertain Known

IV Uncertain Uncertain

This bond pays a fixed rate for the first three years and then converts to floating. It was issued

one year ago, so it will remain fixed for two more years and then convert to floating. That

means that all the future amounts are not known, but the future payment dates are known.

That is a type III liability.

Study Session 10, LOS 22.a

SchweserNotes: Book 3 p.244

CFA Program Curriculum: Vol.4 p.48

Professor's Note: I consider this a useless question. It is pure memorization of infrequently

used and arbitrary terminology. You have taken at least two CFA exams. If you have found

this kind of question to be frequent on the exam, memorize everything in the text. I find it

uncommon. By the way, the only substantive point in this classification discussion is that

type I liabilities are the easiest to model; the others involve greater uncertainty.

Question #49 of 60