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

Bond prices and interest rates move inversely; when rates rise, existing bonds with lower coupons become less valuable relative to newly issued bonds.

Question 2

Duration is a fixed income concept that measures:

Accepted Answer

A bond's price sensitivity to changes in interest rates

Answer

Duration quantifies how much a bond's price will change for a given change in interest rates, with higher duration indicating greater sensitivity.

Question 3

A yield curve is considered 'inverted' when:

Accepted Answer

Short-term rates are higher than long-term rates

Answer

An inverted yield curve, where short-term yields exceed long-term yields, is historically associated with an elevated probability of economic recession.

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

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.

Question 5

Investment-grade bonds are generally defined as those rated:

Accepted Answer

BBB- or above by Standard & Poor's

Answer

Investment-grade status is assigned to bonds rated BBB- or higher by S&P (Baa3 or higher by Moody's), indicating lower default risk.

CIM - Chartered Investment Manager Practice Test

CIM - Chartered Investment Manager Practice Test

CIM CIM Fixed Income & Debt Securities