FIA Fixed Income & Bond Markets 4

Question 1

What is the 'G-spread' of a corporate bond?

Accepted Answer

The bond's yield minus the interpolated Treasury yield of the same maturity

Answer

The G-spread (government spread) is the yield difference between a corporate bond and an interpolated benchmark government bond of equivalent maturity.

Question 2

Which type of bond allows the issuer to redeem the bond before its stated maturity date at a predetermined price?

Accepted Answer

Callable bond

Answer

Callable bonds grant the issuer the right to repurchase (call) the bonds before maturity, typically exercised when interest rates fall.

Question 3

Treasury Inflation-Protected Securities (TIPS) protect investors from inflation by adjusting the bond's:

Accepted Answer

Principal value based on CPI changes

Answer

TIPS adjust their principal value with changes in the Consumer Price Index (CPI); coupon payments (fixed rate × adjusted principal) also rise with inflation.

Question 4

In the bond market, what does 'duration' primarily measure?

Accepted Answer

The bond's weighted average time to receive cash flows, used as an interest rate sensitivity measure

Answer

Duration measures both the weighted average time to receive cash flows and approximates the bond's price sensitivity to interest rate changes.

Question 5

A 'bullet' bond structure means the bond:

Accepted Answer

Repays all principal in a single lump sum at maturity

Answer

Bullet bonds pay periodic coupons and return the entire principal in one payment at maturity—the most common corporate bond structure.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Fixed Income & Bond Markets 4