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
When interest rates rise, the price of an existing fixed-rate bond will:
Answer: Fall, as new bonds offer higher yields making existing bonds less attractive
Bond prices and interest rates move inversely; when rates rise, existing bonds with lower coupons become less valuable relative to newly issued bonds.
Duration is a fixed income concept that measures:
Answer: A bond's price sensitivity to changes in interest rates
Duration quantifies how much a bond's price will change for a given change in interest rates, with higher duration indicating greater sensitivity.
A yield curve is considered 'inverted' when:
Answer: Short-term rates are higher than long-term rates
An inverted yield curve, where short-term yields exceed long-term yields, is historically associated with an elevated probability of economic recession.
A callable bond typically offers a higher yield than an otherwise identical non-callable bond because:
Answer: The issuer's right to redeem the bond early creates reinvestment risk for the investor
Investors demand a higher yield (call premium) on callable bonds to compensate for the risk that the issuer will redeem the bond early, typically when rates fall.
Investment-grade bonds are generally defined as those rated:
Answer: BBB- or above by Standard & Poor's
Investment-grade status is assigned to bonds rated BBB- or higher by S&P (Baa3 or higher by Moody's), indicating lower default risk.
Convexity in bond analysis refers to:
Answer: The curvature in the price-yield relationship, improving price estimates beyond duration alone
Convexity captures the non-linear aspect of how bond prices change with yield movements, providing a more accurate estimate than duration alone for large rate changes.