CIM CIM Fixed Income & Debt Securities

Question 1

When interest rates rise, the price of an existing fixed-rate bond will:

Accepted Answer

Fall, as new bonds offer higher yields making existing bonds less attractive

Answer

Rise proportionally to the rate increase

Answer

Remain unchanged because the coupon is fixed

Answer

Double in value due to compounding effects

Question 2

Duration is a fixed income concept that measures:

Accepted Answer

A bond's price sensitivity to changes in interest rates

Answer

The credit quality of the bond issuer

Answer

The time until the next coupon payment

Answer

The spread between corporate and Treasury yields

Question 3

A yield curve is considered 'inverted' when:

Accepted Answer

Short-term rates are higher than long-term rates

Answer

The curve slopes upward from left to right

Answer

All maturities offer the same yield

Answer

Long-term yields exceed short-term yields by more than 2%

Question 4

A callable bond typically offers a higher yield than an otherwise identical non-callable bond because:

Accepted Answer

The issuer's right to redeem the bond early creates reinvestment risk for the investor

Answer

Callable bonds have a lower credit rating by definition

Answer

Callable bonds pay semiannual coupons while others pay quarterly

Answer

Call provisions reduce the bond's liquidity on secondary markets

Question 5

Investment-grade bonds are generally defined as those rated:

Accepted Answer

BBB- or above by Standard & Poor's

Answer

BB or below by Standard & Poor's

Answer

AA or above by all major rating agencies

Answer

Any bond issued by a publicly traded U.S. corporation

Question 6

Convexity in bond analysis refers to:

Accepted Answer

The curvature in the price-yield relationship, improving price estimates beyond duration alone

Answer

The linear relationship between bond price and coupon rate

Answer

The tax treatment of bond discount amortization

Answer

The correlation between two bonds' credit spreads