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Test Prep CFA-Level-I Exam
CFA® Level I Chartered Financial Analyst (Page 151 )

Updated On: 11-Jan-2026
Page 151 of 793
PDF with 3963 Questions

A bond has a modified duration of 6 and a convexity of 62.5. What happens to the bond's price if interest rates rise 25 basis points?

  1. it goes up 1.46%
  2. it goes down 1.46%
  3. it goes up 4%
  4. it goes down 15%

Answer(s): B

Explanation:

P/P = (-)(MD)(i) + (C)P/P = (-)(6)(+.0025) + (62.5)=- .015 + .00039 = - .01461



Which theory about the term structure of interest rates is correct?

  1. The expectations hypothesis indicates that investors have varying opinions about future interest rates.
  2. The liquidity premium hypothesis assumes investors will give up yield to lock in longer-term interest rates.
  3. That the segmented markets hypothesis contends that borrowers and lenders prefer particular segments of the yield curve.
  4. The expectations hypothesis contends that the long-term rate is equal to the expected short-term rate.

Answer(s): C



You have a 1 year, 10% semi annual coupon bond with a price of $975. If the 6 month T-Bill rate is 6%, what is the one year theoretical spot rate?

  1. 7.4%
  2. 8.7%
  3. 9.9%
  4. 12.8%

Answer(s): D

Explanation:

975 = 50/1.06 + 1050/
975 - 47.17 = 1050/
= 1050/927.83 = 1.1317
r =- 1
r = 6.4%, note this rate is on a semi annual basis. If you annualized this rate by doubling it you would get 12.8.



The six-year spot rate is 7% and the five-year spot rate is 6%. What is the implied one-year zerocoupon bond rate five years from now?

  1. 5%
  2. 6.5%
  3. 7%
  4. 12%

Answer(s): D

Explanation:

5r1= [(1 +/ (1 +] - 1 = [(1.07/(1.06] ­ 1[1.5 / 1.338] - 1 = .12



Which of the following definitions about appraisal is false?

  1. The cost approach to valuation is based on what it would cost to rebuild the property at today's prices.
  2. The comparative sales approach to valuation is based on the sales price of properties that are similar to the subject property.
  3. The income approach to valuation projects the property's value as the present value of its future annual after-tax net operating income.
  4. The `capitalization rate' equals the required rate of return minus the growth rate.

Answer(s): C



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