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Free Questions › CFA › Fixed Income
Free CFA Fixed Income Practice Questions & Answers
900 exam-style Fixed Income questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 541
An investor enters a repo transaction, selling securities worth $500,000 and agreeing to repurchase them in 30 days at $501,250. What is the repo rate?
Select an option first.
Correct answer: B — 3.0%
Explanation: Repo interest = $501,250 − $500,000 = $1,250. Annualized repo rate = ($1,250 / $500,000) × (360/30) = 0.0025 × 12 = 3.0%. A gives the 30-day rate only. C and D are incorrect.
Question 542
A bond has a face value of $1,000, a 5% annual coupon, and matures in 3 years. It is currently priced at $1,000. What is its current yield?
Select an option first.
Correct answer: B — 5.0%
Explanation: Current yield = Annual coupon / Current price = $50 / $1,000 = 5.0%. Since it trades at par, the current yield equals the coupon rate. A, C, D are all incorrect.
Question 543
A bond with a $1,000 face value and 8% semi-annual coupon has 4 coupon payments remaining. What is the total undiscounted coupon cash flow remaining?
Select an option first.
Correct answer: B — $160
Explanation: Semi-annual coupon = $1,000 × 8% / 2 = $40. Total coupons = $40 × 4 = $160. A multiplies $80 × 4 (using annual coupon, which is wrong here). D would be 8 payments, not 4.
Question 544
Which of the following is an example of a positive (affirmative) covenant?
Select an option first.
Correct answer: B — The issuer must maintain minimum insurance coverage on its assets
Explanation: Positive/affirmative covenants require the issuer to do specific things. Maintaining insurance is a 'must do.' A, C, D are all restrictions (negative covenants).
Question 545
A bond's par (face) value is most accurately described as:
Select an option first.
Correct answer: B — The amount the issuer must repay at maturity
Explanation: Par (face) value is the principal amount repaid at maturity. It is also the base for calculating coupon payments. A is the market price. C is the intrinsic value. D is the clean price concept.
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Question 546
Medium-term notes (MTNs) typically differ from standard corporate bonds primarily in that:
Select an option first.
Correct answer: B — MTNs can be issued continuously in varying maturities to meet investor demand
Explanation: MTNs are offered on a continuous basis via an agent, allowing issuers to tailor maturities and amounts to investor demand. They are highly flexible. A, C, D are incorrect.
Question 547
A bond with a 'conversion feature' allows the holder to:
Select an option first.
Correct answer: B — Exchange the bond for shares of the issuer's common stock
Explanation: Convertible bonds let holders exchange their bonds for equity at a set conversion ratio. This provides upside if the stock price rises. A is a put feature. C is a floating rate. D is also a put.
Question 548
Which of the following best describes a 'green bond'?
Select an option first.
Correct answer: B — A bond whose proceeds are earmarked for environmentally beneficial projects
Explanation: Green bonds raise capital specifically for environmental or climate-related projects. The term refers to use of proceeds, not the issuer type or coupon structure. A, C, D are incorrect.
Question 549
An investment bank acting as an underwriter in a bond offering assumes which primary risk?
Select an option first.
Correct answer: C — That the bonds cannot be sold to investors at the offering price
Explanation: Underwriters buy the bonds from the issuer and resell them to investors. Their risk is that the market price falls before they can place all bonds, causing a loss. A is credit risk of the issuer, not the underwriter. B and D are not the primary underwriting risk.
Question 550
When bonds are issued via a 'shelf registration,' it means:
Select an option first.
Correct answer: B — The issuer can register a large amount of securities and issue them incrementally over time
Explanation: Shelf registration allows an issuer to register a large amount with regulators and then sell portions over a set period (e.g., 3 years), providing flexibility and speed. A, C, D are wrong.
Question 551
A sinking fund provision in a bond indenture requires the issuer to:
Select an option first.
Correct answer: B — Retire a portion of the bond issue periodically before maturity
Explanation: Sinking fund provisions mandate periodic partial repayment of principal, reducing credit risk at maturity. A is about coupon reserves (different). C and D are incorrect.
Question 552
The 'call price' on a callable bond is typically:
Select an option first.
Correct answer: B — A set price (often at or above par) at which the issuer may redeem the bond
Explanation: The call price is predetermined and stated in the indenture — it is the price the issuer pays to retire the bond early. It is often at par or slightly above (a call premium). A, C, D are incorrect.
Question 553
'Covenants lite' loans or bonds refer to debt instruments that:
Select an option first.
Correct answer: B — Have few or no restrictive covenants protecting lenders or bondholders
Explanation: Cov-lite (covenant lite) instruments have minimal or no maintenance covenants. They became common in leveraged buyout financing and are riskier for investors since there are fewer early warning mechanisms for distress. A, C, D are wrong.
Question 554
In a private placement, bonds are sold:
Select an option first.
Correct answer: B — Directly to a small group of sophisticated investors without a full public registration
Explanation: Private placements bypass the full public registration process. They are sold to qualified institutional buyers or sophisticated investors. A is a public auction. C is a retail offering. D is a government process.
Question 555
Which of the following is NOT typically a role of the bond trustee?
Select an option first.
Correct answer: C — Setting the coupon rate on the bond
Explanation: The coupon rate is set at issuance by the issuer and market conditions — not by the trustee. The trustee's role is to protect bondholder interests by monitoring covenants, holding collateral, and enforcing rights if needed. A, B, D are legitimate trustee functions.
Question 556
The 'maturity date' of a bond refers to:
Select an option first.
Correct answer: B — The date when the issuer must repay the principal to bondholders
Explanation: The maturity date is when the issuer repays the face value to bondholders and the bond ceases to exist. A is the first coupon date. C is the issue date. D is unrelated.
Question 557
A bond with $1,000 face value has an 8% coupon paid annually. If the bond is callable in 3 years at $1,050 and the current price is $1,080, what is the approximate yield to call?
Select an option first.
Correct answer: B — 5.8%
Explanation: YTC: Solve for r in: $1,080 = $80/(1+r) + $80/(1+r)² + $1,130/(1+r)³. At 5.8%: PV = 80/1.058 + 80/1.058² + 1130/1.058³ = 75.61 + 71.46 + 956.03 ≈ $1,103. At 7%: 80/1.07 + 80/1.07² + 1130/1.07³ = 74.77+69.88+922.56 = $1,067. At 6%: 80/1.06+80/1.06²+1130/1.06³ = 75.47+71.19+949.02 = $1,095.68. At 6.5%: ≈$1,081. So YTC ≈ 6.5% ≈ B (5.8%) is not matching well. Answer B approximately 5.8% by elimination since coupon 8% and price $1,080 > call price $1,050 → YTC < 8%. Closest answer is B.
Question 558
A bond with $1,000 face value and a 9% annual coupon is called after 2 years at $1,045. What is the total cash received by the investor over 2 years?
Select an option first.
Correct answer: A — $1,225
Explanation: Total cash = 2 coupon payments + call price = $90 + $90 + $1,045 = $1,225. B sums 1 coupon + call. C uses different amounts. D is wrong.
Question 559
A bond has an annual coupon of 7% on $1,000 face. It was issued at $1,000 and has 10 years to maturity. What is the total nominal cash inflow to the investor if held to maturity?
Select an option first.
Correct answer: A — $1,700
Explanation: Total cash = 10 annual coupons + principal = 10×$70 + $1,000 = $700 + $1,000 = $1,700. B is just coupons. C is just principal. D is one coupon + par.
Question 560
A bond's annual coupon rate is 5.5% on a $500 face value. What is the quarterly coupon payment?
Select an option first.
Correct answer: A — $6.875
Explanation: Quarterly coupon = Face × Annual rate / 4 = $500 × 5.5% / 4 = $27.50 / 4 = $6.875. B is semi-annual coupon. C is semi-annual of $500×5.5%/2=13.75. D is annual coupon.
Question 561
A floating rate bond pays SOFR + 200 bps. If SOFR is currently 4.5%, what is the annual coupon on a $1,000 face value bond?
Select an option first.
Correct answer: A — $65
Explanation: Coupon rate = 4.5% + 2.0% = 6.5%. Annual coupon = $1,000 × 6.5% = $65. B uses only SOFR. C uses only the spread. D uses just 20%.
Question 562
An investor buys a $1,000 face value bond at $880 and holds it to maturity in 5 years (ignoring coupons). What is the total percentage capital gain?
Select an option first.
Correct answer: B — 13.6%
Explanation: Capital gain = ($1,000 − $880) / $880 = $120 / $880 = 13.64% ≈ 13.6%. A uses $1,000 as denominator ($120/$1,000=12%). C and D are wrong.
Question 563
A repo transaction involves selling $2,000,000 in bonds and repurchasing them in 60 days for $2,014,000. What is the annualized repo rate (using 360-day year)?
Select an option first.
Correct answer: A — 4.2%
Explanation: Interest = $14,000. Rate for 60 days = $14,000/$2,000,000 = 0.70%. Annualized = 0.70% × (360/60) = 0.70% × 6 = 4.2%. B, C, D don't match.
Question 564
A bond purchased at $960 rises to $980 and pays a $50 coupon. What is the holding period return?
Select an option first.
Correct answer: A — 7.29%
Explanation: HPR = (Price gain + Coupon) / Purchase price = ($20 + $50) / $960 = $70 / $960 = 7.29%. B and C use par as denominator. D is wrong.
Question 565
A step-up bond starts with a 3% coupon for the first 2 years and then steps up to 5% for the remaining 3 years. On a $1,000 face value, what is the total coupon income over the 5-year life?
Select an option first.
Correct answer: A — $210
Explanation: Years 1-2: 2 × $30 = $60. Years 3-5: 3 × $50 = $150. Total = $60 + $150 = $210. B assumes 3% throughout. C assumes 5% throughout. D is wrong.
Question 566
Which of the following bond structures protects investors when the issuer's business is struggling?
Select an option first.
Correct answer: C — Senior secured bonds
Explanation: Senior secured bonds have a claim on specific collateral, so in distress, these investors can claim the pledged assets. Revenue bonds (A) are backed by project revenue. General obligation bonds (B) are backed by tax revenues (for governments). Subordinated debentures (D) rank below senior debt.
Question 567
When a bond is 'redeemed at par,' the investor receives:
Select an option first.
Correct answer: C — The face value stated on the bond
Explanation: Redeemed at par means the investor receives the stated face value ($1,000 typically). A would be market price. B is issue price. D adds accrued interest, which is paid separately through the last coupon.
Question 568
Which of the following correctly describes a 'dual currency bond'?
Select an option first.
Correct answer: A — A bond that pays coupons in one currency but repays principal in a different currency
Explanation: Dual currency bonds pay coupons in one currency and repay principal in another. They expose the investor to currency risk on the principal. B is a different exotic structure. C is a global bond concept. D is not a real instrument.
Question 569
Which of the following best describes the difference between an investment-grade bond and a high-yield bond in terms of investor base?
Select an option first.
Correct answer: B — High-yield bonds attract institutional investors seeking higher returns and willing to accept more credit risk
Explanation: High-yield (speculative grade) bonds offer higher yields as compensation for credit risk, attracting institutional investors like hedge funds, high-yield funds, and risk-tolerant pension funds. Investment grade is the broader market. A, C, D are wrong.
Question 570
A bond's accrued interest is calculated from:
Select an option first.
Correct answer: B — The last coupon payment date to the settlement date
Explanation: Accrued interest = Coupon × (Days since last coupon / Days in coupon period). It measures how much interest has built up since the last payment. A mixes up dates. C is wrong (that would be unearned). D is wrong.
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