FIA Fixed Income & Bond Markets 3

Question 1

Which U.S. Treasury security has an original maturity of exactly one year or less?

Accepted Answer

Treasury Bill

Answer

Treasury Bills (T-bills) are short-term government securities with maturities of 4, 8, 13, 17, 26, or 52 weeks.

Question 2

In bond markets, what does 'clean price' refer to?

Accepted Answer

A bond's price after subtracting accrued interest

Answer

Clean price (quoted price) excludes accrued interest; the dirty price (settlement price) adds accrued interest back.

Question 3

What type of risk arises when a bond issuer may be unable to make timely interest or principal payments?

Accepted Answer

Credit (default) risk

Answer

Credit risk (default risk) is the risk that the bond issuer will fail to meet its contractual obligations of interest and/or principal.

Question 4

Which yield measure assumes that all coupon payments are reinvested at the same rate as the bond's current yield to maturity?

Accepted Answer

Yield to maturity (YTM)

Answer

YTM assumes reinvestment of all coupons at the YTM rate itself, which is a key limitation when market rates change.

Question 5

A mortgage-backed security (MBS) exposes investors to prepayment risk primarily because:

Accepted Answer

Homeowners may repay their mortgages early when rates fall

Answer

When interest rates fall, homeowners refinance at lower rates, returning principal to MBS investors sooner than expected—often at the worst time for reinvestment.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Fixed Income & Bond Markets 3