Investment Jobs Fixed Income Securities Test

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 during recessions

Question 2

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

Accepted Answer

The total annualized return if the bond is held to maturity and all payments are reinvested

Answer

The annual coupon payment divided by par value

Answer

The current market price of the bond

Answer

The spread over Treasury yields

Question 3

Which US government agency issues Treasury Inflation-Protected Securities (TIPS)?

Accepted Answer

US Department of the Treasury

Answer

Federal Reserve

Answer

Federal Deposit Insurance Corporation

Answer

Office of the Comptroller of the Currency

Question 4

What is 'duration' as used in bond analysis?

Accepted Answer

A measure of a bond's price sensitivity to changes in interest rates

Answer

The number of years until a bond matures

Answer

The time between coupon payments

Answer

The credit rating tenure of the issuer

Question 5

A bond with a coupon rate below its current yield is trading at:

Accepted Answer

A discount

Answer

Par

Answer

A premium

Answer

Its intrinsic value

Question 6

What is a 'callable bond' and what risk does it present to investors?

Accepted Answer

A bond the issuer can redeem before maturity; presents reinvestment risk

Answer

A bond that can be sold on secondary markets; presents liquidity risk

Answer

A bond that adjusts its coupon rate; presents inflation risk

Answer

A bond convertible to stock; presents dilution risk