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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 120 )

Updated On: 26-Jan-2026
Page 120 of 793
PDF with 3960 Questions

David Garcia, CFA, is analyzing two bonds. Bond X is an option tree corporate security with a 7% annual coupon and ten years to maturity. Bond Y is a mortgage backed security that also matures in ten years. Garcia is considering two possible interest rate scenarios--one in which rates are flat over the entire 10-year horizon, and one in which the yield curve is sloped steeply upwards. For each bond, Garcia has calculated the nominal spread over the 10-year U.S. Treasury issue as well as the zero-volatility spread. The zero-volatility spread would differ the most from the nominal spread:

  1. for Bond X, when the yield curve is sloped steeply upwards
  2. for Bond Y, when the yield curve is sloped steeply upwards
  3. for Bond X, when the yield curve is flat

Answer(s): B



The bonds of Joslin Corp. are currently callable at par value. The bonds mature in eight years and have a coupon of 8%. The yield on the Joslin bonds is 175 basis points over 8-year U.S. Treasury securities, and the Treasury spot yield curve has a normal, rising shape. As yields on bonds comparable to the Joslin bonds decrease, the Joslin bonds will most likely exhibit:

  1. negative convexity
  2. increasing modified duration
  3. increasing effective duration

Answer(s): A



Donald McKay, CFA, is analyzing a client's fixed income portfolio. As of the end of the last quarter, the portfolio had a market value of $7,545,000 and a portfolio duration of 6.24. McKay is predicting that the yield for ali of the securities in the portfolio will decline by 25 basis points next quarter. Which of the following statements regarding the portfolio's performance next quarter is most accurate?

  1. For the expected change in portfolio yield next quarter, the market value of the portfolio will change by approximately 6.24%.
  2. If the yield curve has a 50 basis point downward parallel shift next quarter, the portfolio will increase in value by approximately $235,404.
  3. The portfolio's ending value after the expected decline in yields will be approximately $7,427,298.

Answer(s): B



Kathy Hurst, CFA, is valuing a 4-year zero coupon security. She is provided the following information:
--------------------------------
6.0%
--------------------------------
7.3%
?
8.9%
-------------------------------
The 4-year spot rate is 7.5%.
Calculate the one-year forward rate two years from now ().

  1. 7.3%.
  2. 7.8%.
  3. 8.0%.

Answer(s): B



ABC Corporation has just issued $200 million of 6.5% $1,000 par value bonds at face value. Which of the following requirements in the indenture for these bonds would most likely be considered a negative covenant? ABC must:

  1. maintain its manufacturing equipment in good condition.
  2. make timely semiannual payments of interest and principal when due.
  3. have paid all bond coupon payments due before it can pay cash dividends.

Answer(s): C



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