CFA Fixed Income Analysis 2

Question 1

The Z-spread (zero-volatility spread) is best described as:

Accepted Answer

The constant spread added to each spot rate on the Treasury curve to make the bond's PV equal to its price

Answer

The spread over the par yield curve that makes the bond's present value equal to its price

Answer

The spread that adjusts for the bond's embedded option value

Answer

The spread between a bond's YTM and the 10-year Treasury yield

Question 2

Which of the following best describes the option-adjusted spread (OAS)?

Accepted Answer

OAS = Z-spread – option cost

Answer

OAS = Z-spread + option cost

Answer

OAS = nominal spread – option cost

Answer

OAS = nominal spread + option cost

Question 3

A mortgage-backed security (MBS) is most exposed to which unique risk compared to a standard corporate bond?

Accepted Answer

Prepayment risk

Answer

Credit risk

Answer

Liquidity risk

Answer

Currency risk

Question 4

Under the CFA curriculum, the term structure of interest rates is best described by which of the following?

Accepted Answer

The relationship between bond yields and maturities for bonds of the same credit quality

Answer

The relationship between credit ratings and bond yields

Answer

The spread between corporate and government bond yields

Answer

The slope of the yield curve over a fixed time period

Question 5

Which theory of the yield curve suggests that the shape is determined solely by expectations of future short-term rates?

Accepted Answer

Pure Expectations Theory

Answer

Liquidity Preference Theory

Answer

Market Segmentation Theory

Answer

Preferred Habitat Theory

Question 6

A bond's full price (dirty price) equals:

Accepted Answer

Clean price plus accrued interest

Answer

Clean price minus accrued interest

Answer

Par value plus accrued interest

Answer

Market price minus accrued coupon