Fixed Income - Fixed Income Section 1

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6. Which of the following is most likely an example of a sovereign bond? A bond issued by:

  • Option : A
  • Explanation : A sovereign bond is a bond issued by a national government, such as the U.S. government. A bond issued by a local government, such as the State of Minnesota, is a non-sovereign bond. A bond issued by the IMF is a supranational bond.
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8. A capital market security most likely matures in:

  • Option : C
  • Explanation : The primary difference between a money market security and a capital market security is the maturity at issuance. Money market securities mature in one year or less, whereas capital market securities mature in more than one year.
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9. A bond is trading at a premium, if the bond's price is:

  • Option : C
  • Explanation : If a bond’s price is higher than its par value, the bond is trading at a premium.
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10. A bond has a par value of $1,000 and a coupon rate of 10%. Coupon payments are made semi-annually. The periodic interest payment is:

  • Option : A
  • Explanation : The annual coupon payment is 10% * 1, 000 = $100. The coupon payments are paid semi − annually, so50 is paid twice a year.
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