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1 PART I LEARNING OBJECTIVES, SUMMARY OVERVIEW, AND PROBLEMS 3 CHAPTER 1 FIXEDfiINCOME SECURITIES: DEFINING ELEMENTS PROBLEMS 1. A 10-year bond was issued four years ago. e bond is denominated in US dollars, offers a coupon rate of 10% with […]

103 CHAPTER 1 FIXEDINCOME SECURITIES: DEFINING ELEMENTS SOLUTIONS four years ago.  us, there are six years remaining until the maturity date. B is incorrect because the nominal rate is the coupon rate—that is, the interest rate that the issuer […]

51 CHAPTER 10 THE TERM STRUCTURE AND INTEREST RATE DYNAMICS PROBLEMS 1. Given spot rates for one-, two-, and three-year zero coupon bonds, how many forward rates can be calculated? 2. Give two interpretations for the following forward rate: e […]

151 CHAPTER 10 THE TERM STRUCTURE AND INTEREST RATE DYNAMICS SOLUTIONS 1 .  ree forward rates can be calculated from the one-, two-, and three-year spot rates.  e Additionally, the rate on a two-year loan that begins at […]

55 CHAPTER 11 FIXED-INCOME PORTFOLIO MANAGEMENT—PART I PROBLEMS Practice Problems and Solutions: 1–3 taken from from Managing Investment Portfolios: A Dy- namic Process, ird Edition, John L. Maginn, CFA, Donald L. Tuttle, CFA, Jerald E. Pinto, CFA, and Dennis W. […]

155 CHAPTER 11 FIXEDINCOME PORTFOLIO MANAGEMENTPART I SOLUTIONS 1 .  e tracking risk is the standard deviation of the active returns. For the data shown in the problem, the tracking risk is 28.284 bps, as shown below: Period Portfolio […]

61 CHAPTER 12 FIXEDINCOME PORTFOLIO MANAGEMENTPART II PROBLEMS 1. Your client has asked you to construct a £2 million bond portfolio. Some of the bonds that you are considering for this portfolio have embedded options. Your client has specified that […]

C HAPTER 12 12 FIXEDI NCO ME P O R T F O LI O M A N A G EME N TPART II SOLUTIONS 1 . A . Because you are consi d ering b on d s wit […]

69 CHAPTER 13 RELATIVEVALUE METHODOLOGIES FOR GLOBAL CREDIT BOND PORTFOLIO MANAGEMENT PROBLEMS 1. What is meant by relative value in the credit market? 2. A. What is the dominant type of structure in the investment-grade credit market? B. What are […]

165 CHAPTER 13 RELATIVE-VALUE METHODOLOGIES FOR GLOBAL CREDIT BOND PORTFOLIO MANAGEMENT SOLUTIONS Note: Many of the questions are conceptual in nature.  e solutions o ered are one interpre- tation, and there may be other valid views. 1 . Relative […]

7 CHAPTER 2 FIXEDINCOME MARKETS: ISSUANCE, TRADING, AND FUNDING PROBLEMS 1. In most countries, the bond market sector with the smallest amount of bonds outstanding is most likely the: A. government sector. B. financial corporate sector. C. non-financial corporate sector. […]

107 CHAPTER 2 FIXED-INCOME MARKETS: ISSUANCE, TRADING, AND FUNDING SOLUTIONS amount of bonds outstanding is the non- nancial corporate sector. 2 . B is correct.  e distinction between investment grade and non-investment grade debt relates to di erences in […]

11 CHAPTER 3 INTRODUCTION TO FIXEDINCOME VALUATION PROBLEMS 1. A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that pays interest annually and matures in three years. If the required rate of return on […]

C HAPTER 3 3 I N TR O D UC TI ON T O FIXEDI NCO ME V AL U A T I ON SO L U TI ONS 111 1 . B is correct.  e b on d […]

Chapter 3 Introduction to Fixed-Income Valuation 119 11 ⎛ ⎝ ⎛⎛ ⎛ ⎛ ⎝ ⎝ ⎛ ⎛⎛⎛ ⎞ ⎠ ⎞ ⎞ ⎠ ⎠ + 1 ⎛ ⎝ ⎛ ⎛ ⎝ ⎝ ⎞ ⎠ ⎞ ⎞ ⎞ ⎞ ⎠ ⎠ ⎞⎞ […]

21 CHAPTER 4 UNDERSTANDING FIXED‑INCOME RISK AND RETURN PROBLEMS ese questions were developed by Danny Hassett, CFA (Cedar Hill, TX, USA), Lou Lemos, CFA Institute. 1. A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds the securi- […]

125 C HAPTER 4 4 UN DER ST A N DI NG F IXED-I NCO ME RI SK AN D RET U R N SOLUTIONS 1 . A is correct. A capita l gain is l east l i k […]

27 CHAPTER 5 FUNDAMENTALS OF CREDIT ANALYSIS PROBLEMS 1. e risk that a bond’s creditworthiness declines is best described by: A. credit migration risk. B. market liquidity risk. C. spread widening risk. 2. Stedsmart Ltd and Fignermo Ltd are alike […]

131 CHAPTER 5 FUNDAMENTALS OF CREDIT ANALYSIS SOLUTIONS creditworthiness may deteriorate or migrate lower.  e result is that investors view the risk of default to be higher, causing the spread on the issuer’s bonds to widen. 2. C is […]

31 CHAPTER 6 CREDIT ANALYSIS MODELS PROBLEMS 2013 by CFA Institute. Campbell Fixed Income Analytics provides credit analysis services on a consulting basis to fixed income managers. A new hire, Liam Cassidy, has been asked by his supervisor, Malcolm Moriarty, […]

133 CHAPTER 6 CREDIT ANALYSIS MODELS SOLUTIONS 1 . B is correct. Limitation B is incorrect. Credit ratings tend to be stable, not variable, across  e issuer-pays model for compensating credit rating agencies has a potential con ict of […]

35 CHAPTER 7 INTRODUCTION TO ASSET-BACKED SECURITIES PROBLEMS 1. Securitization is beneficial for banks because it: A. repackages bank loans into simpler structures. B. increases the funds available for banks to lend. C. allows banks to maintain ownership of their […]

135 CHAPTER 7 INTRODUCTION TO ASSET-BACKED SECURITIES SOLUTIONS packages relatively simple debt obligations, such as bank loans, into more complex struc- tures.  e process of securitization involves moving or selling assets from the owner of the assets—in this case, […]

39 CHAPTER 8 THE ARBITRAGE-FREE VALUATION FRAMEWORK PROBLEMS is item set was developed by Karen O’Connor Rubsam, CFA (Phoenix, AZ, USA). Copy- e following information relates to Questions 1–6 Katrina Black, portfolio manager at Coral Bond Management, Ltd., is conducting […]

141 CHAPTER 8 THE ARBITRAGE-FREE VALUATION FRAMEWORK SOLUTIONS Frankfurt exchange (which has the lowest price of €103.7565) and selling it on the Eurex exchange (which has the highest price of €103.7956) to generate a risk-free pro t of €0.0391 (as […]

45 CHAPTER 9 VALUATION AND ANALYSIS: BONDS WITH EMBEDDED OPTIONS PROBLEMS fie following information relates to Questions 1–101 Samuel & Sons is a fixed-income specialty firm that offers advisory services to investment management companies. On 1 October 20X0, Steele Ferguson, […]

145 CHAPTER 9 VALUATION AND ANALYSIS: BONDS WITH EMBEDDED OPTIONS SOLUTIONS style. 2 . C is correct.  e bond that would most likely protect investors against a signi cant in- crease in interest rates is the putable bond, i.e., […]