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CFA-Level-I: CFA® Level I Chartered Financial Analyst
Free Practice Exam Questions (page: 75)
Updated On: 2-Jan-2026

Page 75 of 496
PDF with 3963 Questions

Six-month LIBOR is an interest rate which:

  1. represents the interest rate paid on a CD that matures in 6 months
  2. is the return available on the shortest term euro-denominated securities.
  3. is determined by adding a small spread to the yield available on a UK government bond maturing in 6 months.

Answer(s): A



The loss from an uncollectible account is

  1. an asset
  2. a regular expense of doing business
  3. a liability
  4. a reduction in revenue

Answer(s): B

Explanation:

The benefit from selling on credit to customers far outweighs the cost of losses from uncollectible accounts.
These losses are a regular expense of doing business.



An advantage of the duration/convexity approach over the full valuation approach is:

  1. its superior accuracy for nonparallel shifts in the yield curve
  2. it is not based on yield to maturity, which is a summary measure.
  3. it saves considerable time when working with portfolios of bonds.

Answer(s): C



Which of the following is the least accurate statement about the price-to-sales multiple?

  1. Price-to-sales is a poor valuation technique for growth companies.
  2. Sales growth drives all subsequent earnings and cash flows.
  3. Revenue has minimal accounting manipulation concerns relative to other numbers.

Answer(s): A



Bond X is a nonmailable corporate bond maturing in ten years. Bond Y is also a corporate bond maturing in ten years, and Bond Y is callable at any time beginning three years from now. Both bonds carry a credit rating of AA. Based on this information, identify the most accurate statement:

  1. Bond Y will have a higher nominal spread over a 10-year U.S. Treasury security than Bond X.
  2. The option adjusted spread (OAS) of Bond Y will be greater than the nominal spread of Bond Y.
  3. The nominal spread of Bond X will be greater than the option adjusted spread of Bond X.

Answer(s): A



A Treasury bond dealer observes the following Treasury spot rates from the spot rate curve: 1-year 7.40%, 2- year 7.00%, and 3-year 6.3%. The bond dealer also observes that the market price of a 3-year 8% coupon, 100 par value bond is $103.95. Based on this information, the dealer should:

  1. buy the 8% coupon bond in the open market, strip it, and sell the pieces.
  2. sell the 8% coupon bond short, and buy the component cash flow strips with the proceeds.
  3. do nothing since the 8% bond is selling for its arbitrage-free price.

Answer(s): A



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



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