Series 7 – General Securities Representative Exam Fixed Income Securities 2

Question 1

How is a bond's current yield calculated?

Accepted Answer

Annual coupon payment / Current market price

Answer

Annual coupon / Par value

Answer

Yield to maturity / Coupon rate

Answer

Par value / Current market price

Question 2

Yield to maturity (YTM) assumes which of the following?

Accepted Answer

The bond is held to maturity and all coupons are reinvested at the YTM rate

Answer

The bond is sold at par value after one year

Answer

The coupon rate equals the current yield throughout

Answer

Interest payments are received only at maturity

Question 3

Which measure quantifies a bond's price sensitivity to changes in interest rates?

Accepted Answer

Duration

Answer

Convexity

Answer

Coupon rate

Answer

Credit spread

Question 4

A callable bond gives the issuer the right to:

Accepted Answer

Redeem the bond before maturity at a specified call price

Answer

Increase the coupon rate during the bond's life

Answer

Extend the bond's maturity date at their discretion

Answer

Convert the bond into shares of common stock

Question 5

When a bond is trading at a discount, its yield to maturity is:

Accepted Answer

Greater than the coupon rate

Answer

Equal to the coupon rate

Answer

Less than the coupon rate

Answer

Equal to zero

Question 6

The difference between a corporate bond's yield and a Treasury bond yield of the same maturity is called the:

Accepted Answer

Credit spread

Answer

Duration spread

Answer

Yield curve spread

Answer

Convexity premium

Question 7

Which of the following best describes an inverted yield curve?

Accepted Answer

Short-term rates are higher than long-term rates

Answer

Long-term rates are higher than short-term rates

Answer

All maturities offer the same yield

Answer

Short-term and long-term rates are converging