Chartered Financial Analyst Level I Fixed Income

1.Helena holds an option-free bond with fixed coupons. Buyers now demand a higher yield than yesterday, and the remaining payments are unchanged. What happens to the price she can get?

2.Marcus is offered an option-free bond with a 5% annual coupon. The yield to maturity quoted to him is also 5%. What price should he expect per 100 of face?

3.Pilar looks at an option-free bond with a 5% annual coupon. Buyers require a 6% yield to maturity. How is that bond priced relative to par?

4.Oscar sees an option-free bond with a 6% annual coupon. Buyers require a 5% yield to maturity. Where does the price sit relative to par?

5.Lena prices a two-year zero-coupon bond with a face of 1,000. The yield is 10% a year, compounded once a year. What price does that yield imply?

6.Theo is given a one-year spot rate of 4% and a two-year spot rate of 5%, both annual effective rates. What is the one-year forward rate one year from now?

7.Naomi holds a four-year zero-coupon bond and needs its Macaulay duration in years. What is that duration?

8.Carlos has a bond with a Macaulay duration of 4 years. The yield is 8% a year and payments are annual. What is the modified duration?

9.Ingrid uses a modified duration of 3.70. The yield rises by 0.50 percentage points, which is 0.005 in decimal form. About how much does the price change, using duration alone?

10.Felix prices an option-free bond after a yield rise and compares the actual price with the straight duration estimate. What does that comparison show?

11.Amara owns a bond that pays a 40 coupon each year. Her price is 980. What is the current yield?

12.Jonah buys between coupons. The bond uses a 30/360 day count. Sixty days have passed in a 180-day coupon period, and the coupon for that period is 30. The clean price is 990. What is the dirty price?

13.Rosa settles a bond purchase between coupon dates. The screen shows a clean price, and accrued interest is positive. Which cash amount does she pay the seller?

14.Declan owns a bond the issuer can call. Yields fall into the region where a call is likely. How does his price behave relative to an option-free bond?

15.Yuki's callable bond has a Z-spread of 80 basis points. The call she is short is worth 25 basis points of yield. About what option-adjusted spread does that imply?

16.Hassan owns a putable bond, so he is long the put. The Z-spread is 40 basis points and the put is worth about 15 basis points. Which spread comparison fits?

17.Beatrice holds a mortgage-backed security. Mortgage rates fall and homeowners refinance. What contraction effect does she face?

18.Andre holds a mortgage-backed security whose coupon is below the new mortgage rate. Rates rise and prepayments slow. What extension result does he face?

19.Camille buys protection on a company in a credit-default swap and pays the premium. A defined credit event then occurs. What is her position, and what can she receive?

20.Viktor sells protection in a credit-default swap and has been collecting the premium. A defined credit event occurs. What position has he been running?

21.Sable holds a convertible bond. The issuer's stock is far above the conversion price. What does she actually hold as the stock rises?

22.Nico owns a Treasury. He sells it and agrees to repurchase it the next day at a slightly higher price. In that repo, what is Nico?

23.Farah finances two Treasuries in the repo market. One bond is special and scarce. The other is a general bond. Which repo rate is lower?

24.Ellis's loan resets each quarter off SOFR. He asks whether that reset is still a panel of bank quotes. What is the reference on his loan?

25.Quinn compares a floater with a fixed-rate note of the same maturity. The floater resets often, and its discount margin equals its quoted margin. Market yields move. What happens to the floater's price?

26.Mateo's floating-rate note resets next week. The issuer's credit worsens, so the discount margin rises above the quoted margin. What happens to the price?

27.Hana's bond has modified duration 5 and a price of 98 per 100 of face, so money duration is 5 times 98 = 490. About how much does the price change per 100 of face if the yield rises 10 basis points?

28.Ruben compares two option-free bonds with the same duration. Bond H has higher convexity, and the yield he gives up to own it is small. He expects a large yield move. Which bond outperforms if yields move a lot either way?

29.Elise holds a bond the issuer can call at 102 in one year. Otherwise it matures in ten years. Yield to maturity is 5.2% and yield to call is 3.1%. What is the yield to worst?

30.Paolo owns a discount bond. The call price is above the market price, so a call is unlikely. For this discount bond, what is yield to worst usually?

31.Nia prices a three-year 6% annual coupon bond, face 100, on spot rates of 3%, 4%, and 5%. The cash flows are 6, 6, and 106. What price do those spots give?

32.Grant buys a par bond. Its coupon equals its yield to maturity. The spot curve slopes up, so the one-year spot is below that yield. What can he say about the spot rates?

33.Soraya buys a bond on an upward-sloping curve and plans to ride it, assuming the curve stays put. What rolldown result is she counting on?

34.Idris bought expecting a rolldown gain from an upward-sloping curve. The curve he faces is inverted: the one-year rate is above the ten-year rate. What does rolling down do here?

35.Willa assumes pure expectations and no risk premium. The two-year spot is 5% and the one-year spot is 4%, so the one-year forward one year ahead is about 6.01%. Under that no-premium assumption, what is the 6.01%?

36.Kenji sees a one-year forward rate of 6%. Investors demand a positive term premium. What can that 6% contain?

37.Petra's mandate allows only investment grade, BBB- and above on the scale she uses. A bond she holds is downgraded to BB+. What must she do?

38.Malik hears one bond called a fallen angel. It was issued at A- and later cut to BB. A different bond was issued at B and is still B. Which bond is the fallen angel?

39.Celeste's bond has a spread duration of 4. Its credit spread widens by 10 basis points and the Treasury yield is unchanged. About how much does the price move?

40.Rowan's corporate bond is upgraded. The benchmark Treasury yield does not change, and the credit spread tightens. What happens to the bond's price?

41.Aisha reviews a bond with a 40% recovery assumption and a 2% probability of default over the year. Ignoring discounting, about what expected loss, as a percent of par, does that imply?

42.Lars must rank claims on one issuer: senior secured, unsecured, subordinated debt, and equity. A default is likely and recovery is his concern. Who usually stands first?

43.Mei holds an unsecured bond. The indenture limits new secured debt, and the issuer asks holders to delete that limit. For Mei, what is deleting it?

44.Tomas's bond has a change-of-control put. A buyer that already carries much more debt offers to acquire the company. What does the put let Tomas do?

45.Leila's bond has a sinking fund that retires principal over time. The issuer must buy bonds, and the fund's purchase price is below the market price she wanted. What two effects does she face?

46.Hugo's bond has a make-whole call priced off a Treasury rate plus a small spread. Rates have fallen. Compared with a traditional par call in this low-rate setting, what is the make-whole for him?

47.Sienna holds a bond the issuer may call at par. A rally drives the option-free value well above par. What does this traditional par call do to her upside?

48.Omar bought an inflation-linked bond. The real yield is 1%, and inflation over the year is 3%. He wanted a coupon that stays fixed in nominal terms. What did he actually buy?

49.Freya's inflation-linked bond floors the maturity payoff at the original par. Deflation this year pulls the index down. What can happen to principal?

50.Caleb holds an inflation-linked bond in a taxable account. A tax rule taxes the inflation accrual now. The cash coupon is smaller than the tax on this year's accrual, and he spends only the coupon. What cash problem can he have?

51.Anika switched a loan from a credit-sensitive bank rate to SOFR. In a funding crisis the bank rate jumps, while SOFR, secured by Treasuries, stays low. What does the switch do to that jump?

52.Diego asks a manager to raise a bond yield by 25 basis points. A basis point is 0.01%. The manager instead lifts the yield by 25 percent. What did the manager do to the order?

53.Iris prices a perpetual bond that pays 6 each year per 100 of par. The yield is 8% a year. What is the price?

54.Pavel holds a perpetual that pays 6 a year per 100 of par. It is priced at 75 when the yield is 8%. The yield falls to 6%, and the price becomes 6 / 0.06 = 100. What is the percentage price change?

55.Noor checks a two-year bond with an 8% annual coupon and an 8% yield, face 100. What is the price?

56.Emmett takes a two-year 8% annual coupon bond, face 100, and discounts the same cash flows at 9%. What is the price?

57.Lila buys a two-year 8% annual coupon bond at 98.24 per 100 of face. A year later the remaining bond pays coupon 8 and yields 7%, so it is worth 108/1.07 = 100.93. She receives the coupon of 8. About what holding-period return did she earn?

58.Sergei will hold one bond to maturity and wants no coupon reinvestment risk. He can buy a coupon bond or a zero of that same maturity. Which bond removes coupon reinvestment risk if he stays to maturity?

59.Talia may sell in year two. She holds a ten-year zero, which would lock the return only if she stayed to maturity, and she also looks at a two-year zero. Which has more interest-rate risk for that early sale?

60.Bennett sets two portfolios to the same duration. One is a ladder, with a bond maturing each year. The other is a barbell, short bonds and long bonds with little in between. Which has more convexity?

61.Chioma matches Macaulay duration to a liability horizon on day one, and the assets' present value covers the liability. She never rebalances. What happens to that immunization?

62.Rafael owes one payment at year 6. He can fund it with a six-year zero or with a coupon bond whose Macaulay duration is 6. Which funding avoids coupon-reinvestment rebalancing?

63.Esme matched a liability with a barbell on overall duration. Short rates then rise and long rates fall, and the surplus moves. What would have shown the long-end exposure a single duration hid?

64.Kwame must measure a callable bond whose expected cash flows change when the yield changes. Which duration belongs on that bond rather than the plain modified-duration formula?

65.Daphne compares a callable bond in a low-yield region, where the call is likely, with an otherwise identical option-free bond. How does the callable bond's effective duration compare?

66.Henrik finances a bond that yields 5% at a financing rate of 2%. The carry is positive, and he treats the trade as locked. What can still hurt him?

67.Amira sees a Treasury at a spot price of 100. Financing it to the forward date costs 2, so the fair forward is 102. The quoted forward is 104. What cash-and-carry trade fits that violation?

68.Cole prices a Treasury forward. Financing the spot to the forward date gives a fair forward of 102. The quoted forward is 99. What reverse cash-and-carry fits the cheap forward?

69.Yasmin settles a bond on a coupon date. Accrued interest that day is zero. How do the clean price and the dirty price compare?

70.Arjun's corporate bond is quoted at a spread of 1.4% over a benchmark yield of 3.2%. What is the bond's yield?

71.Greta's bond yields 4%. The government yield is 3% and the swap rate is 3.3%. The G-spread over the government yield is 100 basis points. What is the I-spread?

72.Luca's coupon bond has many payments, and the spot curve is steep. A nominal spread over the ten-year point is 90 basis points. A colleague calls that 90 the Z-spread. What is the Z-spread on Luca's bond?

73.Nadia's bond is subordinated. In a low-recovery bankruptcy the estate covers only part of the senior debt. What can she receive while the senior holder gets a partial recovery?

74.Silas can buy a holding-company bond or an operating-company bond of the same issue size. Operating creditors are paid before any dividend or upstream loan reaches the parent. All else equal, which bond is weaker?

75.Padma studies a special-purpose vehicle that owns receivables and has no claim on the parent. The parent's own rating is weak. What can the vehicle's rating do?

76.Jules holds the short tranche of a sequential mortgage structure. Prepayments go to that short tranche first. Compared with the last tranche, what prepayment risk does the short tranche carry?

77.Rina is offered the support tranche that absorbs prepayment variability so a planned amortization class stays on its schedule. Which piece carries more prepayment risk?

78.Stefan holds a floating tranche with a coupon cap. The index rises through the cap. What interest-rate risk comes back?

79.Oksana holds an interest-only strip. Prepayments speed up and cut the principal base that interest is calculated on. What does that speed do to her, and when can rising rates help?

80.Miles bought a principal-only strip at a deep discount to par. He wants that par amount back sooner. What helps him, and what hurts?

81.Zara buys a covered bond backed by a mortgage cover pool. If the pool is not enough to pay her, what other claim does she have?

82.Hector owns an unsecured bond of a bank. He sets the recovery assumption equal to a deposit at that bank. In a resolution regime that ranks depositors ahead of unsecured bonds, what is wrong with that assumption?

83.Linnea holds two bonds. One is worth 75 and has duration 2. The other is worth 25 and has duration 10. What is the portfolio duration?

84.Cyrus has two positions. A high-yield bond is 2% of the portfolio and has spread duration 5. An investment-grade bond is 50% of the portfolio and has spread duration 2. Which contributes more spread duration?

85.Adele averages two bond yields by market value. Their cash flows arrive on very different dates, and she wants the portfolio's own internal rate of return. What should she prefer?

86.Joaquin cannot tolerate a 20% swing in the local currency. He owns that country's local-currency bond. A hard-currency bond of the same issuer is available. Which bond fits the limit he set?

87.Soren's credit note on a sovereign bond looks only at the government's budget. The budget can cover the coupon, but capital controls can block converting and sending it. What can still trap the coupon?

88.Maren buys a bond after reading the rating press release and never reads the indenture. A change-of-control put is in the contract and is not in the release. What did she miss?

89.Bodhi holds an unsecured bond with a negative pledge. He thinks the clause caps leverage at a number in the term sheet. What does the negative pledge actually restrict?

90.Vera's bond uses an incurrence covenant on leverage, tested only when the issuer acts, such as by borrowing more. Leverage is already above the stated limit, and the issuer is not borrowing. Is that a default today?

91.Kofi reads a maturity date ten years out. The bond also becomes due early if a refinancing is not completed by a nearer date. Which date can matter?

92.Annelise holds an original-issue discount bond. A tax rule accrues the discount into income each year, and the cash coupon is small. How does taxable income compare with the cash coupon?

93.Ravi compares two bonds. A taxable bond yields 5%. A municipal bond, tax-exempt for him, yields 4%. His marginal tax rate is 30%. Which has the higher after-tax yield?

94.Clara's municipal bond yields 3% and is tax-exempt for her. A taxable bond yields 5%. Her marginal tax rate is 30%. Which bond has the higher after-tax yield?

95.Yusuf's coupon period has far more actual days than a 30/360 count would use. His desk habit is 30/360. The bond's terms say actual/actual. Which figure governs the accrued interest?

96.Thea trades a bond on Monday for Friday settlement. The bond's terms accrue interest to the settlement date. Through which date does accrued interest run?

97.Malcolm agrees a when-issued price on a bond that has not been delivered. Before delivery the market price falls, and he wants to walk away for free. What did he actually take on?

98.Saskia bought a bond, but the seller fails to deliver before the coupon record. She has not received the bond. What should she not assume?

99.Evan buys shares in a bond fund at a premium to the holdings. The fund quotes a yield to maturity and keeps replacing bonds as they mature. He treats that quoted yield as his personal promised return. What is wrong with that?

100.Nalini's bond fund distributes more than its yield to maturity. Part of the payout is option premium and part is a return of capital. What should she not assume about that distribution?

101.Brooks ladders bonds so principal matures in different years. He also expects the ladder to raise his expected return at no cost. What does the ladder actually do?

102.Huda must pay one known sum on a single date. She can use a bullet, with principal due on that date, or a ladder that does not converge to the date. Which structure fits the liability?

103.Pierre's bond has a cross-default clause. The issuer misses a payment on a different loan and the clause is triggered. Pierre's own coupon is still being paid. What can he treat as a default?

104.Anya's bond gives the issuer 30 days of grace on an interest payment. The coupon was due five days ago and is unpaid. She wants to accelerate today. Is she on time?

105.Wesley reviews two loans. Loan A still names a reference rate that has ceased, and it has no fallback. Loan B already names SOFR plus a spread. Which contract is exposed to the dead reference rate?

106.Fatima uses duration 5 and convexity 40, with that convexity stated for a decimal yield change. The yield rises by 0.01. She uses minus duration times the yield change, plus one-half times convexity times the yield change squared. What is the approximate price change?

107.Gideon uses the same duration of 5 and the same convexity of 40 for a decimal yield change. The yield falls by 0.01. Using the same formula, what is the approximate price change?

108.Sabine's mortgage bond has negative convexity: the upside is capped and the downside is not. Her manager applies the option-free convexity formula, the one that adds a gain in a rally. What does that formula do to the rally benefit?