FIXED INCOME SECURITIES – 642

Q-1 Assume that the current price of an annual pay bond is 102.50. If its YTM increases by
0.5% the value of the bond decreases to 100 and if its YTM decreases by 0.5% the price of the
bond increases to 105.5% the price of the bond increases to 105.5%. What is the approximate
modified duration of the bond?
(𝐏𝐕 )−(𝐏𝐕 )
− +
Solution :-- 𝐀𝐌𝐃 = 𝟐×(∆𝐘𝐢𝐞𝐥𝐝)×(𝐏𝐕
𝟎)

• 5.37
• 5.48
• 5.5
• 3

Q-2 Holding all other factors constant, the most likely effect of low demand and heavy new
issue supply on bond yield spreads is that yield spreads will : (Ref-Quizlet)

• Widen
• Tighten
• Not be affected
• Remain average

Q-3 A bond’s duration is 4.5 and its convexity is 87.2. If interest rates rise 100 basis points,
the bond’s percentage price change is closest to : (Ref--Chegg)

𝟏
Solution: %∆𝐏𝐕 𝑭𝒖𝒍𝒍 ≈ (−𝐀𝐌𝐃 × ∆𝐘𝐢𝐞𝐥𝐝) + [𝟐 × 𝐂𝐨𝐧𝐯 × (∆𝐘𝐢𝐞𝐥𝐝)𝟐 ]

(-4.5)(0.01) + (½)(87.2)(0.01)2 = -4.06%.

• -4.54
• -4.94
• -4.48
• -4.06
Q-4 A bond is trading at 100 and has a modified duration of 7 and convexity of 100. Market
interest rates decrease by 1%. Answer the following questions related to impact of change in
interest rates on bond prices?
𝟏
Solution: %∆𝐏𝐕 𝑭𝒖𝒍𝒍 ≈ (−𝐀𝐌𝐃 × ∆𝐘𝐢𝐞𝐥𝐝) + [𝟐 × 𝐂𝐨𝐧𝐯 × (∆𝐘𝐢𝐞𝐥𝐝)𝟐 ]

• Decrease by 7.5%
• Increase by 6.5%
• Decrease by 4%
• Increase by 7.5%

What will be the impact on bond prices which can be explained by bond’s modifief
duration and convexity?

Q-5 A bond is trading at 100 and has a modified duration of 7 and convexity of 100. Market
interest rates decrease by 1%. Answer the following questions related to impact of change in
interest rates on bond prices?

• Increase by 7%---
• Decrease by 7%
• Increase by 0.5%
• Decrease by 0.5%

What will be the impact on bond prices which can be explained by bond’s convexity?

Q-6 A bond is trading at 100 and has a modified duration of 7 and convexity of 100. Market
interest rates decrease by 1%. Answer the following questions related to impact of change in
interest rates on bond prices?
Solution: Use Formula “%Change in Price= -MDx change in Yield(%)= 7x 1%== Increase by 7%

• Increase by 7%
• Decrease by 7%
• Increase by 0.5%
• Decrease by 3.5%
What will be the impact on bond prices which can be explained by bond’s modified
duration?
Q-7 A bond is trading at 100 and has a modified duration of 7 and convexity of 100. Market
interest rates decreases by 1%. Answer the following questions related to impact of change in
interest rates on bond prices?
 • Positive
• Negative
• Neutral
• Average

Because of decrease in interest rates, bond prices movement which can be explained by
modified duration will be _______?

Q-8 Consider a floating rate issue that has a coupon rate that is reset on January 1 of each
year. The coupon rate is defined a one-year London Interbank offered Rate (LIBOR) + 125 basis
points and the coupons are paid semi-annually. If the one-year LIBOR is 6.5% on January 1, which
of the following is the semiannual coupon payment received by the holder of the issue in that
year?
Solution:

• 0.0325
• 0.0775
• 0.03875
• 0.06
Q-9 In case of securitized debt issue which of the following is issuer of securities?

• SPV
• Originator
• Depositor
• Underwriter

Q-10 In which of the following bond no interest amount is paid to bondholder till maturity

• Deep Discount Bond

• Plain Vanilla Bond
• Floating Rate Note
• Fixed Coupon Bond

Q-11 The one-year spot rate is 5% and the two-year spot rate is 6.5%. What is the one-year
forward rate starting one year from now?
Solution—To Find 1y1y---
Formlula-- A general formula for the relationship between the two spot rates and the implied forward
rate is

(1 + 𝑧𝐴 )𝐴 × (1 + IFR𝐴,𝐵−𝐴 )𝐵−𝐴 = (1 + 𝑧𝐵 )𝐵

where A is the years from today when the security starts and B – A is the tenor.

• 0.0802
• 0.0787
• 0.05
• 0.065
Q-12 Spread over a Government Bond rate is known as _____?

• G-spread
• I-spread
• Z-spread
• Benchmark spread

Q-13 What is current yield of a bond?

Solution—Explained in Lecture 1—Current Yield is Interest Rate which we are Getting right now/
Price of the Bond--- I/P(Coupon Rate/Price)

• Coupon rate
• Coupon/current price of bond
• Current price of bond/coupon
• Coupon rate/ current price of bond

Q-14 Price risk will dominate reinvestment risk when the investor’s:
Solution: Reference ( https://analystnotes.com/cfa-study-notes-interest-rate-risk-and-the-
investment-horizon.html) -- “The duration gap is the difference between the Macaulay duration
and the investment horizon.

• When the investment horizon is greater than the Macaulay duration of the bond, coupon
reinvestment risk dominates price risk. The investor's risk is to lower interest rates. The
duration gap is negative.
 • When the investment horizon is equal to the Macaulay duration of the bond, coupon
reinvestment risk offsets price risk. The investor is hedged against interest rate risk. The
duration gap is zero.
• When the investment horizon is less than the Macaulay duration of the bond, price risk
dominates coupon reinvestment risk. The investor's risk is to higher interest rates. The
duration gap is positive.” Duration GAP—(D- H)

• Duration gap is negative

• Duration gap is positive
• Investment horizon is equal to bond’s tenor
• Investment horizon is less than bond’s tenor

Q-15 A bond is trading at the price of 900 now. If the market interest rate increases over a
period of one year then the bond price will ______?

• Increase
• Decrease
• Remain same
• Fluctuate
Q-16 The holding period for a bond at which the coupon reinvestment risk offsets the market
price risk is best approximated by:
Solution—Explained by Duration Gap

• Modified duration
• Duration gap
• Macaulay duration
• Convexity

Q-17 Coupon reinvestment risk dominates for ________ investment horizon?

• Long
• Average
• Short
• None of the above

Q-18 The probability of default will be low if loan to value ratio is ________

• High
• Low
• Average
• No impact
Q-19 In the event of default the recovery rate of which of the following bonds would most likely
be the highest?
Solution:-- “First mortgage debt is the highest ranked debt in terms of priority of claims and is
considered secured debt. First mortgage debt will also have the expected highest recovery rate.
First mortgage debt refers to the pledge of specific property. Neither senior unsecured nor junior
subordinate debt has any claims on specific assets.”

• First mortgage debt

• Senior unsecured debt
• Junior subordinate debt
• Second mortgage debt

Q-20 Three bonds are identical in credit quality and all other respect except the following Bond
X: Noncallable, accelerated sinking fund. Bond Y: Callable, accelerated sinking fund. Bond Z:
Noncallable, no sinking fund. The correct order for these three bonds from highest yield to lowest
yield, is

Solution:-- Bond Z has no provisions for early retirement (which are unfavorable for the bondholder, other
things equal), so it should yield the lowest. Bond X is noncallable, but allows the issuer to redeem principal
through an accelerated sinking fund. Bond Y has an accelerated sinking fund and is callable, giving the issuer
the most flexibility, and therefore requiring the highest yield.

• Bond Y; Bond Z; Bond X

• Bond X; Bond Z; Bond Y
• Bond Y; Bond X; Bond Z
• All bonds will have equal yield
Q-21 The constant spread added to each spot rate so that present value of cash flows is equal
to bond price is known as _______?
Solution:-- The Z-spread is the constant spread that makes the bond's price equal to the present
value of its cash flow along each point along the Treasury curve

• G-Spread
• I-Spread
• Z-Spread
• Benchmark Spread

Q-22 In case of securitized debt, risk that causes actual cash flows to be different from
scheduled cash flows is known as _________?

• Credit risk
• Bankruptcy risk
 • Pre-payment risk
• None of the above

Q-23 Market Price Risk is a component of ________ risk?

• Credit Risk
• Interest Rate Risk
• Reinvestment Risk
• Systematic Risk

Q-24 Yield spread is the combination of ___________?

Solution--- is a combination of Taxation, Liquidity and Credit Risk

• Risk free rate + liquidity premium

• Risk free rate + credit spread
• Liquidity premium + credit spread
• Benchmark spread

Q-25 An investor holds $100,000 (par value) worth of TIPS currently trading at par. The coupon
rate of 4% is paid semiannually, and the annual inflation rate is 2.5%. What coupon payment will
the investor receive at the end of the first six months?
Solution:- Reference(Quizlet)-- B This coupon payment is computed as follows:
coupon payment=($100,000x1.0125)(0.02 )= $2,025 [PPT Example Explanation- the inflation-
adjusted principal amount increases to L1,050 [L1,000 ×(1 + 0.05)]
• 4000
• 2000
• 2025
• 2050

Q-26 A bond is trading at the price of 900 now. If the market interest rate doesn’t change for
one year then the bond price will ______________?

• Increase
• Decrease
• Remain same
• Fluctuate
Q-27 Which of the following bonds is most likely to exhibit the greatest volatility due to interest
rate changes? A bond with a :
Solution: PPT of Chapter 3—Coupon Effect, Maturity Effect

• High coupon and a long maturity

• Low coupon and a short maturity
• Low coupon and a long maturity
• High coupon and a short maturity

Q-28 In CMO structure inverse floater pays a __________ rate when interest rates go up?
Solution: PPT Explained--Inverse Floating Notes Rates—Example 10%- LIBOR--- If LIBOR goes
does Inverse Floater will Gain and Vice Versa

• Higher
• Lower
• Same
• Average

Q-29 Loss severity is equal to ___________?

Solution:-(Reference--https://analystprep.com/cfa-level-1-exam/fixed-income/credit-risk-
default-probability-loss-severity/) loss severity, or loss given default, is also expressed as (1-
Recovery rate), where the recovery rate is described as the percentage of the principal amount
recovered in the event of default.

• Recovery rate
• Default risk/recovery rate
• 1-recovery rate
• None of the above

Q-30 In order to analyze the collateral of a company a credit analyst should assess the :
Solution: (Reference Quizlet) also PPT—Chap 7-- Debt-to-service coverage ratio, which is
the property’s net operating income (NOI) divided by the debt service

• Cash flows of the company

• Soundness of management’s strategy
• Value of the company’s assets in relation to the level of debt
• Value of the company’s assets in relation to cash flows

Q-31 Which of the following is an example of affirmative covenant?

• Make payments on time

• Restrictions on debt
 • Negative pledges
• No further investments

Q-32 Bond X and Bond Y have the same par value, coupon, maturity and credit rating, but Bond
X trades at a higher price than Bond Y. A possible reason for this difference is that :
Solution: Reference( https://www.gaodun.com/q/300t5k)

• Bond X has a higher expected loss in a default

• Bond Y has a higher expected recovery rate in a default
• The market expects a downgrade to Bond Y’s credit rating
• None of the above
Q-33 The “four Cs” of credit analysis include :

Solution: Capacity, Collateral, Covenants, Character

• Capacity and character

• Circumstances and covenants
• Collateral and capital
• Circumstances and collateral

Q-34 A zero coupon bond has a YTM of 8% and par value of 1000. If the bond maturity is 10
years then calculate the today’s price of bond? PV factor = 0.463
Solution: (Reference)- https://www.unm.edu/~maj/Investments/PS12%20sol.pdf PV0 = 1000/
(1+0.08) power 10 . Calculator entries are N = 10, I/Y = 8, PMT = 0, FV = 1,000, CPT PV 463.198

One time Discounting—PMT+FV/(1+r) power n---- 0+1000/(1+0.08)power10==Answer-- 463.198

• 1000
• 463
• 1463
• 1080
Q-35 The bonds issued by World Bank are categorized as :

• Supra-National Bonds
• Sovereign Bonds
• Government Bonds
• Corporate Bonds
Q-36 Assume a bond’s quoted price is 105.22 and the accrued interest is $3.54. The bond has
a par value of $100. What is the bond’s clean price?
Solution: PPT-- Bond dealers usually quote the flat price (or Clean Price. Pc), Buyers pay the full
price for the bond on the settlement date. Also Reference—(
https://forum.theanalystspace.com/viewthread.php?action=printable&tid=77244) The clean price is the
bond price without the accrued interest so it is equal to the quoted price.

• 105.22
• 108.76
• 103.54
• 101.68

Q-37 the bonds rated ________ are known as below investment grade bonds?

• BBB & above

• BB & above
• BB & below
• BBB & below
Q-38 Which of the following is an example of internal credit enhancement?

• Surety Bond
• Bank Guarantee
• Letter of Credit
• Over Collateralization

Q-39 The indenture of a callable bond states that the bond may be called on the first call date.
The call option embedded in this bond is a(n):
Solution:Reference—(https://www.creditresearchchallenge.com/wp-content/uploads/2018/10/Mock-
Test-1.pdf) A bond with a Bermuda style embedded call option may be called on Pre-specified
dates after the first call date. A European Style embedded call option specifies a single date on
which a bond may be called. With an American Style embedded call option, a bond may be called
any time after its first call date.

• European style call option

• Bermuda style call option
• American style call option
• None of the above

Q-40 The Bond with credit rating BBB falls in

• Investment grade
 • Non-Investment Grade Bond
• High Yield Bond
• None of the above
Q-41 In CMO structure floating rate tranche pays a_______ rate when interest rates go up?

• Higher
• Lower
• Same
• Average

Q-42 If the two bonds are alike in all respect except that bond A is callable & bond B is plain
vanilla bond, then coupon of bond A will be ____ than bond B

• More
• Less
• Equal to
• Can be any of the above

Q-43 Assume a bond’s quoted price is 105.22 and the accrued interest is $3.54. The bond has
a par value of $100. What is the bond’s full price?
Solution: Pf= Pc + AI, here Pc(Clean Price, Quoted Price, Flat Price) is 105.22+3.54=108.76

• 105.22
• 108.76
• 103.54
• 101.68
Q-44 A bond’s yield to maturity decreases from 8% to 7% and its price increases by 6%, from
$675.00 to $715.50. The bond’s effective e duration is closest to :
Solution:Reference(Chegg )Effective duration is the percentage change in price for a 1% change in
yield, which is given as 6.

• 7
• 5
• 6
• 8
Q-45 Austin Traynor is considering buying a $1,000 face value, semi-annual coupon bond with
a quoted price of 104.75% of face value and accrued interest since the last coupon of $33.50.
Ignoring transaction costs, how much will the seller receive at the settlement date ?

Solution:- Quoted Price= Clean Price= Flat Price= 104.75% of 1000= 1047.5$, AI= 33.50.
Pf=1047.5+33.50=1081

• 1047.5
• 1014
• 1081
• 1033.5
Q-46 The impact of any change in YTM on bond prices is _______ for __________ in convexity?

• Increased, increase
• Increased, decrease
• Decreased, increase -Answer Not Sure
• None of the above

Q-47 The special purpose vehicle in a securitization is :

• Division of the seller

• A joint venture partner of the seller
• A subsidiary of the seller
• An entity independent of the seller

Q-48 The principal payment structure in which specified amount of bond will be redeemed
every year is known as _______?

• Bullet Bond
• Balloon Payment
• Amortizing Bond
• Sinking fund arrangement

Q-49 A$1,000 par value bond has a modified duration of 5. If the market yield increased by 1%
the bond’s price will :
Solution: % change in PVfull= -MDx % change in Yield= -5x 1%= -5%== PVfull=1000-5%= 950$.

• Increase by $50
 • Decrease by $50
• Decrease by $60
• Increase by $60
Q-50 Sensitivity of bond price to yield is reflected by which of the following two factors ?
−(PV )−(PV )
+
Solution: %Change in Price full== -MD x % change in Yield , AMD = 2×(∆Yield)×(PV
0)

1
Convexity-- %∆PV
𝐹𝑢𝑙𝑙
≈ (−AMD × ∆Yield) + [ × Conv × (∆Yield)
2
]
2

• Macauley Duration & YTM

• Modified Duration & Convexity
• YTM & Yield Spread
• Macauley Duration & Current Yield
Q-51 Bond Duration in measures the interest rate sensitivity of which of the following bond
price?
Solution: Pfull

• Clean Price
• Accrued interest
• Full Price
• None of the above

Q-52 Credit ratings primarily reflect _________________?

• Probability of default
• Loss severity
• Expected loss
• All of the above

Q-53 In which of the following offering the investment bank only serves as a broker, It only tries
to sell the bond issue at the negotiated offering price it is able to for a commission

• Underwritten offerings
• Best Effort Offerings
• Auctions
• Private Placement
Q-54 Coupon reinvestment risk is high for ________ bond?
Solution: Reference: (https://financetrain.com/factors-affecting-reinvestment-risk/)

• High Coupon
• Low Coupon
• Short Maturity
• Same for all bonds

Q-55 The Bond with credit rating BB falls in

• Investment grade
• Non-Investment Grade Bond
• Safe Bonds
• None of the above

Q-56 The bonds rated ________ are known as investment grade bonds ?

• BBB & above

• BB & above
• BB & below
• BBB & below
Q-57 _______ duration is weighted average of time to receipt of coupon interest & principal
repayments
Solution: PPT-- Macaulay duration is a weighted average of the time to receipt of the bond’s promised
payments, where the weights are the shares of the full price that correspond to each of the bond’s
promised future payments.

• Money
• Modified
• Curve
• Macaulay
Q-58 The higher the credit risk _____ will be the return demanded by investor?

• Higher
• Lower
• Average
• Market Return
Q-59 Commercial paper is a source of funding for which of the following?

• Working capital requirements

• Seasonal demand for cash
• Bridge financing
• All of the above
Q-60 Indian firm’s & denominated bond sold in Singapore can be categorized as ______?

• Domestic Bond
• Foreign Bond
• Euro Bond
• Global Bond

Q-61 If the coupon rate of a 3 year bond is 12% par value is 1000 and issue price is 1200.
Calculate the maturity amount to be paid to investor.
Solution: Reference(Examveda)

• 1200
• 1632
• 1000
• 1360

Q-62 The interest & principal is repaid to investor of securitized debt instrument out of pool of
________?

• Sale of fixed assets

• Business operations
• Cash flows from pool of loan serving as collateral
• None of the above

Q-63 A bond issued by Toyota company in US denominated in US $ and registered with SEC is
an example of _____________?

Solution: Curreny, Investor, Country is Different—Then It should be Eurobond

Issuer is Domestic company—Domestic Bond, Issuer is from Foreign Country---then Its Foreign
Bond. Toyota is from Japan

• Domestic Bond
• Foreign Bond
• Euro Bond
• Global Bond
Q-64 Market Price Risk dominates the coupon reinvestment risk for _______ investment
horizon?

• Long
• Average
• Short
• None of the above

Q-65 A Bond’s duration is 4.5 and its convexity is 87.2. If inter5est rates rise 100 basis points,
the bond’s percentage price change is closest to :

• -4.54
• -4.94
• -4.48
• -4.06

Q-66 Debt with a lower priority of claims than a firm's unsecured debt is best described as

Ans- subordinated

Q-67 the Offering in which bonds are sold only to a specific group of investors is known as
a. Underwritten offering
b. Best effort offering
c. Auctions
d. Private placement

Q- 68 - In which of the following tranche cash flow are more predictable?

Ans- Planned Amortization Class Tranches

Q – 69 Securitization least likely benefits the financial system by

Ans - removing liabilities from bank balance sheet

Q 70 . A bond portfolio consists of a AAA bond, a AA bond, and an A bond. The prices of the
bonds are $1,050, $1,000, and $950respectively. The durations are 8, 6, and 4 respectively. What
is the duration of the portfolio?
Solution: The duration of a bond portfolio is the weighted average of the durations of the bonds in the
portfolio. The weights are the value of each bond divided by the value of the portfolio:
portfolio duration = 8 × (1050 / 3000) + 6 × (1000 / 3000) + 4 × (950 / 3000) = 2.8 + 2 + 1.27 =
6.07

• 6.07
• 6.00
• 6.67

Q 71: A restricted payment covenant in a high yield bond indenture protects lenders by:
Ans: limiting the amount of cash that may be paid to equity holders

Q 72. Which of the following bonds has the highest interest rate sensitivity?
Ans: Ten year, option-free 6% coupon bond
Q 73: Debt with lower priority of claims then a firm’s unsecured debt is best described as:

a. Subordinated
b. Pari-Passu
c. Secon Lien
d. Sub-Senior

Q 73. in case of mortgaged back debt if the interest rate decreased then which of the following
risk will arise?
a. Extension Risk
b. Contraction Risk
c. Credit Risk
d. Bankruptcy Risk
Q 74. Liquidity risk ____ at the time of financial crises?
a. Increase
b. Decrease
c. Remain Same
d. Eliminates

Q 75. Securitization is beneficial for banks Because it?

Solution: reference(Quizlet)

• repackages bank loans into simpler structures.

• increases the funds available for banks to lend.
 • allows banks to maintain ownership of their securitized assets.

Q 76. The Maturity of money market securities is less than

• 10 year
• 5 year
• 2 years
• One year

Q 77. Which of the following bond has fixed coupon Rate?

A plain vanilla bond

Q 78. _________ rates are YTM on Zero coupon bonds maturing on the date of each cash flow
Spot

Q 79. Which of the following bonds are impacted most by a change in market discount rate?
High Coupon
Q 80. When the liquidity risk increase bid- ask spread _______________?

• Increases
• Decreases
• Remains same
• None of the above

Q 81 A bond with a yield to maturity of 8% is priced at 96.00 if its yield increase to 8.3% its price
will decreased to 94.06% if its yield decreased to 7.7% its price will increase to 98.47 the Modified
duration of the bond is closest to:
7.66

Q 82. Consider $ 1,000,000 par value , 10 year, 6.5% coupon bond issued on January 1, 20X5. The
Market rate for similar bonds is currently 5.7% A Sinking fund provision requires the company to
redeem $ 1,000,000 of the principal each year. Bonds called under the terms of the sinking fund
provision will be redeemed at par. A bondholder would

Prefer not to have her bonds called under the sinking fund provision.
Q 83. The higher quality bonds bid-ask spread is ________?
lower

Q 84 The expected loss in case of default is ?

• Probability of default
• Loss severity
• Default risk x loss severity
•

Q 85 Which of the following collateral provides maximum protection to bond holder?

Mortgage
Q 86 The Principal payment structure in which specified amount of bond will be redeemedd every
year is known as ____ ?
Amortizating Bond

Q 87. The impact of change in spread on bond prices can be determined by ________ ?

• Macaulay Duration x Change in Spread

• -Macaulay Duration x Change in Spread
• Modified Duration x Change in Spread
• -Modified Duration x Change in Spread

Q 88. Assuming no change in the credit risk of a bond, the presence of embedded put option
Solution: Reference(Quizlet)

• Reduces the effect of duration of bond

• Increases the effective duration of the bond
• Does not change the effective duration of the bond
• None of these

Q 89. Bond prices relationship with convexity can be expressed by _______?

Solution : Formula

• Convexity x Change in Spread

 • Convexity x(Change in Spread)^2
• ½ Convexity x (Change in Spread)^2
• ½ Convexity x Change in Spread
Q90. The most common type of internal Credit enhancement is _____?

• Letter of credit
• Cash collateral account
• Senior/Subordinate structure
• All of the above

Q 91. Increase in transaction cost for buying and selling the bond is part of _____ risk?

• Credit Risk
• Coupon reinvestment risk
• Interest rate risk
• Liquidity risk

Q92. An yield curve includes the yield of bonds with similar _____?

Solution: as all bonds have equal credit quality

• Maturity
• Coupon
• Issuer
• All of the above

Q93. Bonds with same rating may have _______ expected loss?

• Similar
• Exactly same
• Average
• Significantly different

Q94. If the coupon rate of a 3 year bond is 12% par value is 1000 and issue price is 1200. Calculate
the coupon amount to be paid to investor
Solution: Coupon is paid only on Par Value/Face Value, not on Market value or Issue Price

• 60
• 120
• 144
• 72
Q95. Securitization least likely benefits the financial system by:
Solution: Reference Slideshare

• Removing liabilities from bank balance sheets

• Increasing liquidity for mortgages and other loans
• Increase the amount bank are able to lend
• None of the above

Q96. A mortgage is most attractive to a lender if the loan :

Solution: Investopedia

• Has a prepayment penalty

• Is with recourse
• Is convertible from fixed-rate to adjustable-rate
• Is non-recourse

Q97. Which of the following option benefits the bond issuer

Solution: Investpedia

• Puttable bonds
• Callable bonds
• Interest rate floor
• Warrant

Q 98. If investors expect greater uncertainty in the bond markets, yield spreads between AAA
and B rated bonds are most likely to:
Solution: With greater uncertainty, investors require a higher return for taking on more risk. Therefore
credit spreads will widen.

• Slope downward
• Narrow
• Remain constant
• Widen
•