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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 113 )

Updated On: 26-Jan-2026
Page 113 of 793
PDF with 3960 Questions

Ned Jameson. CFA, is considering the purchase of a newly issued asset-backed security (ABS) for his fixed income portfolio. According to the broker/dealer offering the bond, the OAS for the issue is 75 basis points (bps). Based on the OAS value, which of the following assumptions can Jameson make about this particular ABS?

  1. The OAS represents the investor's compensation for credit risk, liquidity risk, and option risk.
  2. The bond is trading at a yield that is more than 75 bps higher than a Treasury security with a comparable maturity.
  3. The implied cost of an option embedded in the security is always equal to the difference between the OAS and the Treasury spread.

Answer(s): B



With regard to a theoretical Treasury yield curve constructed with the bootstrapping method:

  1. every point on the curve is constructed by utilizing current on-the-run Treasury yields of various maturities.
  2. the yield for most maturities used to construct the Treasury yield curve are observed yields rather than interpolated yields.
  3. any yield on the Treasury yield curve that is not one of the on-the-run maturities is only an approximation for that maturity.

Answer(s): C



An analyst is evaluating an annual-pay bond with a yield to maturity of 7.0%. The bond-equivalent yield of this bond is:

  1. equal to 7.0%
  2. less than 7.0%
  3. greater than 7.0%

Answer(s): B



An economist has forecast that the term structure of interest rates will remain perfectly flat. According to the liquidity preference theory, the economist's forecast implies that future short-term interest rates will:

  1. decrease over time
  2. increase over time
  3. equal current short-term interest rates

Answer(s): A



Identify the most accurate statement regarding collateralized borrowing transactions.

  1. Repurchase agreements usually offer the lowest interest cost.
  2. Margin buying usually allows for borrowing a higher percentage of the collateral value.
  3. Margin buying is usually the preferred transaction structure for institutional bond investors.

Answer(s): A



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