CFA L1 Test

8 Questions | Total Attempts: 44

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CFA L1 Test

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Questions and Answers
  • 1. 
     Two amortizing bonds have the same maturity date and same yield to maturity. The reinvestment risk for an investor holding the bonds to maturity is greatest for the bond that is:
    • A. 

      A coupon bond selling at a premium to par.

    • B. 

      A coupon bond selling at a discount to par as a result of market yields increasing after the bond was issued.

    • C. 

      A zero-coupon bond

  • 2. 
    • A. 

      Credit spread risk.

    • B. 

      Liquidity risk.

    • C. 

      Inflation risk

  • 3. 
    A portfolio of option-free bonds is least likely to be exposed to:
    • A. 

      Yield curve risk.

    • B. 

      Volatility risk.

    • C. 

      Reinvestment risk

  • 4. 
    A certain agency bond has a duration of 8.73 years and a convexity of 61.33:If market yields decrease significantly (e.g., by 250 basis points), the price of the bond increases by less than the amount indicated by the convexity measure alone. 
    • A. 

      If market yields increase significantly (e.g., rates increase by 250 basis points), the price of the bond falls by less than the amount indicated by duration alone

    • B. 

      If market yields increase significantly, the price of the bond falls by more than the amount indicated by duration alone.

    • C. 

      If market yields decrease significantly, the price of the bond increases by less than the amount indicated by duration alone.

  • 5. 
    Wallace presents the relationships between spot and forward rates according to the pure expectations theory. Which of the following is closest to the one-year implied forward rate one year from now?1 year spot rate is 5.24982 year spot rate is 5.7492
    • A. 

      6.25%

    • B. 

      5.75%

    • C. 

      6.58%

    • D. 

      Option 4

  • 6. 
    An analyst gathered the following spot rates:Time (years)Annual Spot Rate115.0%212.5%310.0%47.5%The one-year forward rate two years from now is closest to:
    • A. 

      -4.91%

    • B. 

      5.17%.

    • C. 

      10.05%

    • D. 

      15.74%

  • 7. 
    Omega Corp. has outstanding a $100 million, 9% coupon bond issue that is refund protected until July 1, 2010. This issue:
    • A. 

      Is call protected until July 1, 2010.

    • B. 

      Is non callable.

    • C. 

      Currently may be redeemed but only if refunded by an issue with a lower cost.

    • D. 

      Currently may be redeemed with funds from general operations.

  • 8. 
    A three-year option-free bond with an 8 percent annual coupon rate has a yield to maturity of 9 percent. One- and two-year spot rates are 6.5 percent and 7.0 percent, respectively. The three-year spot rate is closest to:
    • A. 

      9.0%.

    • B. 

      8.1%

    • C. 

      6.4%.

    • D. 

      9.2%.