MCQ Quiz

Question 1 of 35

A bond that pays quarterly coupons most likely has a stated annual yield with periodicity of:

1
2
4

Question 2 of 35

The most recently issued government bond used as a benchmark is most accurately called:

Off-the-run
On-the-run
Callable benchmark

Question 3 of 35

Simple yield is most accurately described as coupon payments plus straight-line amortized gain or loss, divided by the bond's:

Flat price
Face value
Accrued interest

Question 4 of 35

Current yield is a crude measure of return because it most likely ignores:

Interest on interest
Annual coupon
The bond's flat price

Question 5 of 35

Compared with street convention yield, true yield is most likely:

Never higher
Always higher
Exactly the same

Question 6 of 35

A bond pays semiannual coupons and its periodic yield per semiannual period is 1.5%. What is the semiannual bond basis yield (annual yield on a semiannual bond basis)?

3.0225%
3.0%
1.5%

Question 7 of 35

Government equivalent yield most accurately restates a bond yield from:

Actual/actual to 30/360
30/360 to actual/actual
Quarterly to monthly

Question 8 of 35

The yield spread in basis points over an actual or interpolated government bond yield is most accurately called the:

G-spread
I-spread
Option-adjusted spread

Question 9 of 35

For a zero-coupon bond, the periodicity of the annual market discount rate is most accurately described as:

Fixed at 1
Arbitrary
Always equal to 2

Question 10 of 35

An annual rate with periodicity of two is most accurately called a:

Semiannual bond basis yield
True yield
Simple yield

Question 11 of 35

For capital market securities maturing in more than one year, investors most likely want a yield measure that is:

Annualized and compounded
Annualized but not compounded
Stated only per coupon period

Question 12 of 35

When converting a positive annualized yield to more frequent compounding, the stated annual rate will most likely:

Rise
Stay the same
Fall

Question 13 of 35

For a callable bond, traditional yield-to-maturity must most likely be modified because it assumes:

All cash flows occur as promised
Coupon rates change each period
The bond has no maturity date

Question 14 of 35

According to the CFA Curriculum (Equation 5), the OAS for a callable bond equals:

OAS $=$ Z-spread $+$ option value (bps per year)
OAS $=$ G-spread $-$ option value (bps per year)
OAS $=$ Z-spread $-$ option value (bps per year)

Question 15 of 35

The Z-spread $Z$ is a constant added to benchmark spot rates. Which equation correctly represents Equation 4 from the CFA Curriculum?

$PV = \frac{PMT}{(1+z_1+Z)^1} + \frac{PMT}{(1+z_2+Z)^2} + \cdots + \frac{PMT+FV}{(1+z_N+Z)^N}$
$PV = \frac{PMT+Z}{(1+z_1)^1} + \frac{PMT+Z}{(1+z_2)^2} + \cdots + \frac{PMT+FV+Z}{(1+z_N)^N}$
$PV = \frac{PMT}{(1+z_1)^1+Z} + \frac{PMT}{(1+z_2)^2+Z} + \cdots + \frac{PMT+FV}{(1+z_N)^N+Z}$

Question 16 of 35

According to the CFA Curriculum, simple yields are used mostly to quote:

Japanese government bonds
US Treasury bills
Euro corporate bonds

Question 17 of 35

A yield measure that assumes cash flows are paid on scheduled dates and does not account for weekends and holidays is most likely called:

Street convention yield
Government equivalent yield
Option-adjusted spread

Question 18 of 35

Which formula correctly represents the price of an $N$-period fixed-rate bond with coupon payment $PMT$, face value $FV$, and yield per period $r$?

$PV = \frac{PMT}{(1+r)^1} + \frac{PMT}{(1+r)^2} + \cdots + \frac{FV}{(1+r)^N}$
$PV = PMT \times (1+r)^1 + \cdots + (PMT + FV) \times (1+r)^N$
$PV = \frac{PMT}{(1+r)^1} + \frac{PMT}{(1+r)^2} + \cdots + \frac{PMT + FV}{(1+r)^N}$

Question 19 of 35

A five-year zero-coupon bond is priced at 80 per 100 of par. Which formula correctly solves for the annual yield $r$ assuming annual compounding (periodicity of 1)?

$80 = \frac{100}{(1+r)^{10}}$
$80 = 100 \times (1+r)^5$
$80 = \frac{100}{(1+r)^5}$

Question 20 of 35

A bond has a negative yield using annual compounding. If the yield is converted to monthly compounding, the yield will most likely become:

More negative
Zero
Less negative

Question 21 of 35

Current yield is most accurately defined as annual coupon divided by the bond's:

Face value
Flat price
Full price

Question 22 of 35

A bond's Z-spread is 120 bps and its embedded call option value is 30 bps per year. Using Equation 5, what is the OAS?

150 bps
30 bps
90 bps

Question 23 of 35

A constant yield spread added to each benchmark spot rate to match a bond's price is most accurately called the:

Current yield
Z-spread
True yield

Question 24 of 35

For investors facing call risk, yield-to-worst is most accurately understood as the:

Highest yield among call-date yields
Lowest possible yield from the relevant call or maturity outcomes
Coupon rate minus current yield

Question 25 of 35

The G-spread for a corporate bond over a government benchmark is most accurately expressed as:

G-spread $=$ YTM$_{\text{bond}}$ $-$ swap rate
G-spread $=$ YTM$_{\text{government}}$ $-$ YTM$_{\text{bond}}$
G-spread $=$ YTM$_{\text{bond}}$ $-$ YTM$_{\text{government benchmark}}$

Question 26 of 35

If a bond yield is 2% per semiannual period, its annual yield on a semiannual bond basis is most likely:

2%
4%
6%

Question 27 of 35

When the government bond benchmark maturity does not exactly match the bond's maturity and interpolation is required, the G-spread is:

G-spread $=$ YTM$_{\text{bond}}$ $-$ interpolated YTM$_{\text{government}}$
G-spread $=$ interpolated YTM$_{\text{government}}$ $-$ YTM$_{\text{bond}}$
G-spread $=$ YTM$_{\text{bond}}$ $-$ spot rate$_{\text{government}}$

Question 28 of 35

The same five-year zero-coupon bond priced at 80 per 100 now uses quarterly compounding (periodicity of 4). Which equation correctly sets up the yield calculation?

$80 = \frac{100}{(1+r)^{20}}$, then annual yield $= r \times 4$
$80 = \frac{100}{(1+r)^{5}}$, then annual yield $= r \times 4$
$80 = \frac{100}{(1+r)^{20}}$, then annual yield $= r \times 2$

Question 29 of 35

To rearrange the periodicity conversion formula to solve for $APR_n$, given $APR_m$, $m$, and $n$, which expression is correct?

$APR_n = n \left[ \left(1 + \frac{APR_m}{m}\right)^{m+n} - 1 \right]$
$APR_n = n \left[ \left(1 + \frac{APR_m}{m}\right)^{m/n} - 1 \right]$
$APR_n = \frac{n}{m} \times APR_m$

Question 30 of 35

In the benchmark-plus-spread framework, the benchmark rate most likely captures:

Macroeconomic top-down factors
Issuer-specific bottom-up factors
Only coupon payment frequency

Question 31 of 35

A bond's yield-to-maturity can most accurately be decomposed into a benchmark rate and a:

Spread
Coupon frequency
Face value

Question 32 of 35

Which of the following correctly expresses the periodicity conversion formula (Equation 1) for converting $APR_m$ with $m$ periods per year to $APR_n$ with $n$ periods per year?

$(1 + APR_m)^m = (1 + APR_n)^n$
$(1 + \frac{APR_m}{m})^m = (1 + \frac{APR_n}{n})^n$
$(1 + \frac{APR_m}{m})^n = (1 + \frac{APR_n}{n})^m$

Question 33 of 35

A bond's annual yield is 4% with a periodicity of 2 (semiannual). Using Equation 1, the equation needed to find the equivalent annual yield $APR_4$ with periodicity 4 (quarterly) is:

$(1 + 0.04)^2 = (1 + \frac{APR_4}{4})^4$
$(1 + \frac{0.04}{4})^4 = (1 + \frac{APR_2}{2})^2$
$(1 + \frac{0.04}{2})^2 = (1 + \frac{APR_4}{4})^4$

Question 34 of 35

A corporate bond has a YTM of 3.5%. The interpolated swap rate for the same maturity is 2.8%. What is the I-spread?

280 bps
70 bps
35 bps

Question 35 of 35

A bond has a periodic yield of 1% per quarter (periodicity of 4). Its annual yield on a semiannual bond basis ($APR_2$) is found by solving which equation?

$(1 + \frac{0.04}{2})^2 = (1 + \frac{APR_2}{4})^4$
$(1 + 0.04)^1 = (1 + \frac{APR_2}{2})^2$
$(1 + \frac{0.04}{4})^4 = (1 + \frac{APR_2}{2})^2$

Yield and Yield Spread Measures for Fixed-Rate Bonds (Katas)

First Principles Thinking: core idea

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First Principles Thinking: semiannual bond basis yield formula

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First Principles Thinking: OAS formula

First Principles Thinking: Z-spread formula structure

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First Principles Thinking: bond pricing formula structure

First Principles Thinking: zero-coupon bond pricing formula

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First Principles Thinking: core idea

First Principles Thinking: OAS calculation

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First Principles Thinking: G-spread formula

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First Principles Thinking: G-spread with interpolation

First Principles Thinking: zero-coupon bond with quarterly compounding

First Principles Thinking: rearranging the periodicity conversion formula

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First Principles Thinking: core idea

First Principles Thinking: periodicity conversion formula

First Principles Thinking: applying periodicity conversion

First Principles Thinking: I-spread formula

First Principles Thinking: converting quarterly to semiannual periodicity