FIA Fixed Income & Bond Markets 2

Question 1

Which risk measures the sensitivity of a bond's price to a 1 basis point change in yield?

Accepted Answer

Dollar Value of a Basis Point (DV01)

Answer

DV01 (also called PVBP) measures the dollar price change of a bond for a one basis point (0.01%) move in yield.

Question 2

A bond trading at a price below its par value is said to be trading at a:

Accepted Answer

Discount

Answer

A bond trading below par (face value) is at a discount, meaning its yield is above its coupon rate.

Question 3

What is the primary difference between investment-grade and high-yield bonds?

Accepted Answer

Investment-grade bonds carry lower credit risk and higher ratings

Answer

Investment-grade bonds are rated BBB-/Baa3 or above, indicating lower default risk, while high-yield (junk) bonds carry ratings below that threshold.

Question 4

Which type of bond structure pays no periodic interest and instead is issued at a deep discount to face value?

Accepted Answer

Zero-coupon bond

Answer

Zero-coupon bonds make no periodic coupon payments; the investor's return comes entirely from the difference between the purchase price and face value at maturity.

Question 5

The Option-Adjusted Spread (OAS) is used to compare bonds by:

Accepted Answer

Removing the value of embedded options to isolate credit/liquidity spread

Answer

OAS strips out the value of embedded options (like call features) so the remaining spread reflects credit and liquidity risk only.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Fixed Income & Bond Markets 2