Fixed Income Analysis Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fixed Income Analysis flashcards as text
A bond's full price (dirty price) equals its flat price (clean price) plus:
Answer: Accrued interest since the last coupon date
Full price = flat price + accrued interest, where accrued interest represents the portion of the next coupon earned by the seller.
Under the bootstrapping method, a 2-year spot rate is derived by:
Answer: Solving for the rate that equates a 2-year par bond's cash flows to its price using the known 1-year spot rate
Bootstrapping uses known shorter-term spot rates to sequentially solve for the next spot rate using the par bond pricing equation.
A floater pays SOFR + 150 bps, reset quarterly. If SOFR rises by 200 bps, the bond's price will:
Answer: Remain near par because the coupon adjusts to market rates
Floating-rate bonds reset their coupons periodically to reflect current market rates, so their prices remain close to par regardless of rate changes.
The swap spread is defined as the fixed rate on an interest rate swap minus:
Answer: The yield on a Treasury bond of the same maturity
The swap spread = fixed swap rate − Treasury yield of equivalent maturity, reflecting credit and liquidity differences between swap counterparties and the government.
Which measure of yield BEST accounts for reinvestment income and the actual holding period of an investor who does not hold to maturity?
Answer: Holding period return
Holding period return captures actual coupon income, reinvestment income, and capital gains or losses over the specific period the investor holds the bond.
In a credit default swap (CDS), the protection buyer makes periodic premium payments and receives a payment if:
Answer: The reference entity experiences a credit event such as default
The CDS protection buyer receives a contingent payment upon a defined credit event (default, restructuring, etc.) on the reference entity.
Which of the following best describes key rate duration (partial duration)?
Answer: The bond's sensitivity to changes in a specific maturity point on the yield curve
Key rate duration measures price sensitivity to a change in yield at a specific maturity point, holding all other rates constant, revealing exposure to non-parallel yield curve shifts.