QFC QFC Fixed Income & Credit Analysis

Question 1

What is the relationship between bond prices and interest rates?

Accepted Answer

Inverse — prices fall when rates rise

Answer

Positive — prices rise when rates rise

Answer

No relationship — they are independent

Answer

Positive only for zero-coupon bonds

Question 2

What does 'duration' measure in fixed income analysis?

Accepted Answer

Weighted-average time to receive a bond's cash flows, as a measure of interest rate sensitivity

Answer

Time to maturity of a bond

Answer

The annual coupon payment of a bond

Answer

The credit rating assigned to a bond

Question 3

What is the yield spread between a corporate bond and a comparable maturity Treasury bond primarily reflecting?

Accepted Answer

Credit (default) risk and liquidity risk premium demanded by investors

Answer

Liquidity risk only

Answer

Inflation expectations embedded in corporate bonds

Answer

The difference in coupon payment frequencies

Question 4

Which term describes a bond that is issued at a discount and pays no periodic coupon payments?

Accepted Answer

Zero-coupon bond

Answer

Callable bond

Answer

Convertible bond

Answer

Floating rate note

Question 5

In credit analysis, what does the interest coverage ratio measure?

Accepted Answer

A firm's ability to pay interest expense from operating earnings

Answer

The ratio of total debt to total assets

Answer

The proportion of fixed-rate debt in the capital structure

Answer

The default probability implied by CDS spreads

Question 6

What is 'convexity' in bond analysis?

Accepted Answer

The second-order measure of bond price sensitivity to yield changes, improving on duration's linear approximation

Answer

The coupon rate adjustment for inflation

Answer

The difference between a bond's yield and the risk-free rate

Answer

The bond's sensitivity to changes in the issuer's credit rating