FI 1.4 Test

A bond market in which a communications network matches buy and sell orders initiated from various locations is best described as an:

• A. organized exchange.
• B. open market operation.
• C. over-the-counter market.

Which of these definitions of duration is most relevant to a bond investor? A bond’s duration is its:

• A. price sensitivity to yield changes.
• B. first derivative of value with respect to its yield.
• C. half-life.

For two equally rated speculative grade bonds, what factor is least likely to account for differences in their valuation?

• A. Severity of loss
• B. Probability of default
• C. Perceived creditworthiness of the companies

How much will the value of a three-year $100 par value coupon bond with annual payments, a coupon rate of 9%, and a discount rate of 7% most likely change if market interest rates immediately increase by 1%?

• A. −2.68
• B. −3.47
• C. −2.40

A benefit of securitization is the:

• A. reduction in disintermediation.
• B. simplification of debt obligations.
• C. creation of tradable securities with greater liquidity than the original loans.

Which of the following is least likely a component of the “Four Cs of Credit Analysis” framework?

• A. Covenants
• B. Competition
• C. Collateral

• A. 2.97%.
• B. 5.72%.
• C. 5.94%.

The real rate duration for an option-free, fixed-rate bond is equivalent to the bond’s:

• A. inflation duration and liquidity duration.
• B. credit duration and not its inflation duration.
• C. inflation duration and not its liquidity duration.

For a fixed-rate bond, Macaulay duration is:

• A. unrelated to the bond’s yield to maturity.
• B. inversely related to the bond’s yield to maturity.
• C. positively related to the bond’s yield to maturity.

Which of the following statements is least accurate regarding the factors that affect the interest rate risk characteristics of an option-free bond?

• A. The lower the coupon rate, the greater the bond’s price sensitivity to changes in interest rates.
• B. The higher the yield, the greater the bond’s price sensitivity to changes in interest rates.
• C. The longer the bond’s maturity, the greater the bond’s price sensitivity to changes in interest rates.