CIM Fixed Income & Debt Securities Flashcards
6 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CIM Fixed Income & Debt Securities flashcards as text
Credit spread represents the difference between:
Answer: The yield on a corporate bond and the yield on a comparable maturity Treasury bond
Credit spread is the additional yield an investor earns above the risk-free Treasury rate to compensate for the credit risk of a non-government issuer.
Which of the following best describes a mortgage-backed security (MBS)?
Answer: A bond backed by a pool of mortgage loans that passes interest and principal payments to investors
An MBS is a securitized product where the cash flows from a pool of mortgage loans are passed through to investors as interest and principal payments.
Prepayment risk is a concern for MBS investors primarily because:
Answer: When rates fall, homeowners refinance early, returning principal at an inopportune time for investors
Prepayment risk means investors receive principal back sooner than expected — often when rates are low — forcing reinvestment at lower yields.
The yield to maturity (YTM) of a bond assumes which of the following?
Answer: All coupon payments are reinvested at the YTM rate until maturity
YTM is calculated under the assumption that all coupon payments are reinvested at the same YTM rate, which may not hold in practice.
Treasury Inflation-Protected Securities (TIPS) protect investors from inflation by:
Answer: Adjusting the bond's principal value in line with the Consumer Price Index (CPI)
TIPS adjust their principal upward with CPI increases, so both the principal at maturity and the coupon payments grow with inflation.
A bond trading at a discount to par value implies its:
Answer: Current market yield is higher than its stated coupon rate
When a bond's market yield exceeds its coupon rate, investors pay less than par (a discount) to achieve the required return.