THROUGH 107 RELATE TO FIXED INCOME. (21 MINUTES)A 7.5% CO...

Questions 94 through 107 relate to Fixed Income. (21 minutes)

A 7.5% coupon, semiannual-pay, five-year bond has a yield to maturity of 6.80%. Over the next year, if the bond's yield to

maturity remains unchanged, its price will:

A)

increase.

B)

decrease.

C)

remain unchanged.

Question #95 of 120 Question ID: 1146204

The type of credit risk that is most directly reflected in a bond's rating is:

default risk.

downgrade risk.

credit spread risk.

Question #96 of 120 Question ID: 1146215

Both bonds will increase in value.

Both bonds will decrease in value.

One bond will increase in value and the other will

Question #97 of 120 Question ID: 1146181

Which of the following statements about debt securities is least accurate?

Commercial paper is a short-term vehicle for corporate

borrowing.

A securitized bond is a security whose cash flows are

linked to a pool of underlying loans or financial

instruments.

A medium-term note (MTN) is a corporate bond with an

original maturity of 2 to 10 years.

Question #98 of 120 Question ID: 1146199

Portfolio duration most accurately approximates the sensitivity of the value of a bond portfolio to:

parallel shifts in the yield curve.

increases in the slope of the yield curve.

decreases in the slope of the yield curve.

Question #99 of 120 Question ID: 1146206

A firm is said to have a top-heavy capital structure if a high percentage of its total capital is:

debt.

short-term debt.

secured bank debt.

Question #100 of 120 Question ID: 1146197

An 8%, semiannual pay, option-free corporate bond that is selling at par has ten years to maturity. What is the

approximate modified duration of the bond based on a 75 basis point change (up or down) in rates?

5.6.

6.8.

7.2.

Question #101 of 120 Question ID: 1146191

The current 4-year spot rate is 4% and the current 5-year spot rate is 5.5%. What is the 1-year forward rate in four years?

9.58%.

10.14%.

11.72%.

Question #102 of 120 Question ID: 1146193

A bond with nine years to maturity is quoted at an interpolated spread of +150 basis points. The benchmark yield for this

bond is:

a swap rate.

a matrix rate.

a government bond yield.

Question #103 of 120 Question ID: 1146188

The face value of a $1,000,000 T-bill with 78 days to maturity is priced at $987,845. What is the bank discount yield

(annualized) quote for the T-bill?

5.61%.

5.67%.

5.75%.

Question #104 of 120 Question ID: 1146195

A 10-year note issued by Gaullic Finance will be paid from a bankruptcy-remote pool of Gaullic's balance sheet assets.

These notes are best described as:

covered bonds.

securitized bonds.

asset-backed bonds.

Question #105 of 120 Question ID: 1146196

Extension in an agency residential mortgage-backed security is most likely to result from:

a decrease in interest rates.

exhaustion of a support tranche.

Question #106 of 120 Question ID: 1146184

A hedge fund manager is estimating a value for a non-traded bond of Yoder Company. The bond has an annual-pay 6%

coupon, matures in six years, and has a CCC credit rating. Actively traded annual-pay bonds with similar credit ratings

include the following:

Coupon Maturity Yield to maturity

8% 5 years 9.45%

5% 5 years 9.55%

7% 10 years 10.00%

Based on matrix pricing, the value of the Yoder bond as a percentage of par is closest to:

83.9.

84.1.

84.5.

Question #107 of 120 Question ID: 1146200

Consider two option-free, 5% annual-pay bonds from the same issuer and with the same seniority. One of the bonds has

a modified duration of 3.5 and approximate convexity of 15. The other has a modified duration of 8.5 and approximate

convexity of 75. Can the lower- duration bond have more price volatility than the higher-duration bond?

No, because it also exhibits lower convexity.

Yes, because shifts in the yield curve may be non-

parallel.

No, because its price will respond relatively less in

response to changes in yield.

Question #108 of 120 Question ID: 1146222