Trading Jobs Fixed Income Trading

Question 1

What is the relationship between bond prices and interest rates?

Accepted Answer

They move in opposite directions

Answer

Bond prices and interest rates have an inverse relationship — when rates rise, existing bond prices fall, and vice versa.

Question 2

What is 'yield to maturity' (YTM)?

Accepted Answer

The total return anticipated if held until maturity

Answer

Yield to maturity is the total annualized return an investor would earn if they bought the bond today and held it until maturity, accounting for all coupon payments and price appreciation or depreciation.

Question 3

What is 'duration' as used in fixed income trading?

Accepted Answer

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

Answer

Duration measures how sensitive a bond's price is to changes in interest rates — a bond with higher duration will experience larger price swings when rates move.

Question 4

Which type of US Treasury security has the shortest maturity?

Accepted Answer

Treasury bills

Answer

Treasury bills (T-bills) have maturities of one year or less (4, 8, 13, 26, or 52 weeks), making them the shortest-term Treasury instruments.

Question 5

What does it mean when a bond is trading 'at a discount'?

Accepted Answer

Its price is below its face (par) value

Answer

A bond trading at a discount means its current market price is below its face value of $1,000, typically because market interest rates have risen since issuance.

Trading Jobs Practice Test

Trading Jobs Practice Test

Trading Jobs Fixed Income Trading