CFM CFM Fixed Income & Credit Analysis

Question 1

What is the fundamental relationship between bond prices and interest rates?

Accepted Answer

Bond prices move inversely to interest rates

Answer

Bond prices move in the same direction as interest rates

Answer

Bond prices are unaffected by interest rates

Answer

Bond prices only change at maturity

Question 2

Which measure quantifies the weighted average time to receive a bond's cash flows?

Accepted Answer

Duration

Answer

Convexity

Answer

Yield to maturity

Answer

Coupon rate

Question 3

What is a credit default swap (CDS) primarily used for?

Accepted Answer

Hedging credit risk on a reference entity

Answer

Paying fixed coupons on a bond

Answer

Converting floating rates to fixed rates

Answer

Increasing duration of a portfolio

Question 4

What does positive convexity indicate about a bond's price-yield relationship?

Accepted Answer

Price increases more than duration predicts when rates fall, and decreases less when rates rise

Answer

Price changes are perfectly linear with rate changes

Answer

Price always increases regardless of rate movement

Answer

The bond pays higher coupons when rates rise

Question 5

What is the credit spread in fixed income markets?

Accepted Answer

The yield difference between a corporate bond and a comparable Treasury bond

Answer

The difference between a bond's coupon and its yield to maturity

Answer

The gap between bid and ask prices on a bond

Answer

The spread between short-term and long-term government rates

Question 6

Which rating category do Moody's, S&P, and Fitch classify as 'investment-grade'?

Accepted Answer

Baa3/BBB- and above

Answer

Ba1/BB+ and above

Answer

Caa/CCC and above

Answer

A1/A+ and above only