CFS CFS Fixed Income & Bonds 1

Question 1

Which bond characteristic measures the sensitivity of a bond's price to changes in interest rates?

Accepted Answer

Duration

Answer

Duration measures how much a bond's price will change for a given change in interest rates, expressed in years.

Question 2

A bond is said to be trading at a 'discount' when its market price is:

Accepted Answer

Below its par value

Answer

A bond trades at a discount when its market price is below its face (par) value, typically because prevailing interest rates are higher than the bond's coupon rate.

Question 3

What is the primary risk associated with callable bonds from an investor's perspective?

Accepted Answer

Reinvestment risk

Answer

Callable bonds expose investors to reinvestment risk because the issuer can redeem the bond early, forcing investors to reinvest at potentially lower prevailing rates.

Question 4

Which rating from Moody's indicates the highest investment-grade bond quality?

Accepted Answer

Aaa

Answer

Moody's highest rating is Aaa, indicating the issuer has an exceptional capacity to meet financial commitments.

Question 5

The yield curve is considered 'inverted' when:

Accepted Answer

Short-term yields are higher than long-term yields

Answer

An inverted yield curve occurs when short-term interest rates exceed long-term rates, often considered a recession predictor.

CFS - Certified Fund Specialist Practice Test

CFS - Certified Fund Specialist Practice Test

CFS CFS Fixed Income & Bonds 1