CISI IAD Fixed Income Securities

Question 1

What is the relationship between bond prices and interest rates?

Accepted Answer

They move in opposite directions

Answer

They move in the same direction

Answer

They are unrelated

Answer

They only correlate for government bonds

Question 2

A bond with a face value of £1,000, a coupon rate of 5% and a current market price of £950 has a current yield of approximately:

Accepted Answer

5.26%

Answer

5.00%

Answer

4.75%

Answer

5.50%

Question 3

Which of the following best describes 'duration' in the context of fixed income securities?

Accepted Answer

A measure of a bond's sensitivity to interest rate changes

Answer

The number of years until the bond matures

Answer

The average time until principal repayment only

Answer

The coupon payment frequency

Question 4

A 'zero coupon bond' is best described as:

Accepted Answer

A bond issued at a discount that pays no periodic interest

Answer

A bond that pays no interest and is issued at par

Answer

A bond with a variable coupon that can fall to zero

Answer

A government bond with a zero credit risk

Question 5

Which type of UK government bond is designed to protect investors against inflation?

Accepted Answer

Index-linked gilts

Answer

Conventional gilts

Answer

Undated gilts

Answer

Treasury bills

Question 6

What does 'yield to maturity' (YTM) represent for a bond?

Accepted Answer

The total annualised return if the bond is held until maturity and coupons are reinvested at the same rate

Answer

The coupon rate stated on the bond certificate

Answer

The current income yield based on market price

Answer

The yield on a comparable risk-free government bond

Question 7

Which credit rating is considered the lowest investment-grade rating by Standard & Poor's?

Accepted Answer

BBB-

Answer

AA-

Answer

A-

Answer

BB+