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

Current yield equals the annual coupon payment divided by the bond's current market price, reflecting the income return based on what was actually paid.

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

YTM assumes the bond is held to maturity and that all coupon payments are reinvested at a rate equal to the YTM itself.

Question 3

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

Accepted Answer

Duration

Answer

Duration measures how much a bond's price will change for a given change in interest rates; a higher duration means greater price sensitivity.

Question 4

A callable bond gives the issuer the right to:

Accepted Answer

Redeem the bond before maturity at a specified call price

Answer

A call provision allows the issuer to retire the bond before its scheduled maturity, typically when interest rates fall, at a predetermined call price.

Question 5

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

Accepted Answer

Greater than the coupon rate

Answer

A discount bond trades below par, meaning the investor gains not only the coupon but also capital appreciation to par at maturity, so YTM exceeds the coupon rate.

Series 7 – General Securities Representative Exam Practice Test

Series 7 – General Securities Representative Exam Practice Test

Series 7 – General Securities Representative Exam Fixed Income Securities 2