Fixed Income - Fixed Income Section 1

Avatto>>CFA Level 1>>PRACTICE QUESTIONS>>Fixed Income>>Fixed Income Section 1

21. The interest rate of a security is adjusted periodically as per inflation. This is most likely a(n):

  • Option : B
  • Explanation : Any bond that is aligned with an index or inflation is called index-linked bonds.
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22. Inflation-linked bonds are structured in a way that:

  • Option : C
  • Explanation : Inflation-linked bonds can be structured in a variety of ways; the inflation adjustment can be made via the coupon payments, the principal repayment, or both.
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23. Which of the following is least likely an issuer of bonds?

  • Option : B
  • Explanation : Pension funds are typically investors in, not issuers of, bonds. A and C are incorrect because major issuers of bonds include sovereign (national) governments, non-sovereign (local) governments, quasi-government agencies, supranational organizations, and financial and non-financial companies.
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24. Analyst 1: Non-sovereign government bonds are bonds issued by agencies that are owned by governments.
Analyst 2: Non-sovereign government bonds are bonds issued by an international organization such as World Bank. Which analyst’s statement is most likely correct?

  • Option : C
  • Explanation : Non-sovereign (local) government bond issuers include provinces, regions, states, and cities. Analyst 1 is incorrect because quasi-government bonds are issued by agencies that are either owned or sponsored by governments. Analyst 2 is incorrect because supranational bonds are issued by international organizations.
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25. A fixed-income security issued with a maturity at issuance of five months is most likely classified as a:

  • Option : B
  • Explanation : Money market securities are issued with a maturity at issuance (original maturity) ranging from overnight to one year. A is incorrect because securitization does not relate to a bond’s maturity, but to the process that transforms private transactions between borrowers and lenders into securities traded in public markets. C is incorrect because capital market securities are issued with an original maturity longer than one year.
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