CFA Level I "Introduction to Fixed-Income Valuation," by James F. Adams and Donald J. Smith Section 2.3 Question 27 of 30 Which of the following factors will most likely drive the repo margin lower? Lower credit quality of the counterparty Lower quality of the collateral Shorter supply of the collateral Incorrect. If the collateral is in short supply or if there is a high demand for it, repo margins are lower. Repo margin is the difference between the market value of the security used as collateral and the value of the loan. CFA Level I "Fixed-Income Markets: Issuance, Trading, and Funding," by Moorad Choudhry, Steve V. Mann, and Lavone F. Whitmer Section 7.3.2 Question 28 of 30 Using the following information and assuming coupons are paid annually, the G-spread of the Steel Co. bond is closest to: Bond Maturity Coupon Price Steel Co. 2 Years 5.00% 101.70 Treasury bond 2 Years 4.00% 100.50 94 bps. 100 bps.
36 bps. Correct. The yield for Steel Co. bond is calculated as: , r =4.0974%. The yield for the Treasury bond is calculated as r =3.7359%. G-spread is calculated as the yield difference between the Steel Co. Bond and the Treasury bond: 4.0974% – 3.7359%=0.3615%, or 36 bps. CFA Level I “Introduction to Fixed-Income Valuation,” by James F. Adams and Donald J. Smith Section 5.1 Question 29 of 30 Treasury spot rates on a semiannual bond equivalent yield basis are provided below. Maturity Semiannual Bond Equivalent Yield 0.5 years 0.40% 1.0 years 0.80% 1.5 years 1.00% 2.0 years 1.10% 2.5 years 1.20% Using these spot rates, the value of a 2.5-year Treasury security that makes semiannual payments based on a 2% coupon rate is closest to : 106.88. 99.06. 101.98. Correct. The value of the bond is CFA Level 1 "Introduction to Fixed- Income Valuation," James F. Adams and Donald J. Smith, Section 2.4 Question 30 of 30
Which type of bond is most likely to be preferred by investors in a falling interest rate environment? A floored floating-rate note A capped floating-rate note A floating-rate note with no cap or floor Incorrect. A floored floating-rate note prevents the coupon rate from falling below the specified minimum rate. In a falling interest rate environment, this feature will benefit investors because it guarantees that the coupon rate will not fall below the specified minimum rate. CFA Level I "Fixed-Income Securities: Defining Elements," by Moorad Choudhry and Stephen E. Wilcox Section 4.2
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