Investment Jobs Fixed Income Securities Test 2

Question 1

What is the 'credit spread' on a corporate bond?

Accepted Answer

The yield premium over a comparable Treasury security

Answer

The difference between the bid and ask price

Answer

The bond's coupon rate minus inflation

Answer

The difference between current yield and YTM

Question 2

Which credit rating is the lowest investment-grade rating assigned by Moody's?

Accepted Answer

Baa3

Answer

Aaa

Answer

B1

Answer

Caa1

Question 3

What is a 'zero-coupon bond'?

Accepted Answer

A bond issued at a discount that pays no periodic interest but repays full par at maturity

Answer

A bond that pays interest monthly instead of semi-annually

Answer

A floating rate bond with a minimum coupon floor of zero

Answer

A bond backed by zero-risk government collateral

Question 4

The yield curve typically slopes upward (normal yield curve) because:

Accepted Answer

Investors demand higher yields for longer maturities due to greater uncertainty and liquidity risk

Answer

Short-term bonds are riskier than long-term bonds

Answer

The Federal Reserve sets long-term rates higher than short-term rates

Answer

Corporate bonds always yield more than Treasuries

Question 5

What are mortgage-backed securities (MBS)?

Accepted Answer

Securities collateralized by a pool of mortgage loans

Answer

Bonds issued by mortgage companies to fund operations

Answer

Loans backed by US government guarantees

Answer

Bonds that convert to real estate ownership

Question 6

What is 'negative convexity' and which type of bond commonly exhibits this feature?

Accepted Answer

The price-yield relationship caps upside; callable bonds

Answer

Bonds that lose value when rates fall; zero-coupon bonds

Answer

Bonds with yields below zero; TIPS

Answer

Bonds that mature before their call date; convertible bonds