Fixed income on the CFA Level I exam covers bond pricing, yield measures, interest rate risk, credit analysis, and the term structure of interest rates. Weighted 11-14% (CFA Institute), making it one of the largest topics.
A bond trading at a price above its par value is said to be trading at:
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Correct Answer: A
Solution
A is correct.
A bond trading above par value is trading at a premium. This occurs when the bond's coupon rate exceeds the current market yield.
Question 2
Medium
A bond's coupon rate is the:
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Correct Answer: B
Solution
B is correct.
The coupon rate is the stated annual interest rate expressed as a percentage of the bond's par (face) value. It determines the fixed periodic coupon payments.
Question 3
Hard
Bootstrapping is a method used to derive:
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Correct Answer: B
Solution
B is correct.
Bootstrapping is a sequential process used to derive the spot rate curve from the yields on coupon-paying (par) bonds. Starting with the shortest maturity, each spot rate is calculated using previously derived shorter-term spot rates.
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