1. Principal components analysis shows that the second most common yield curve shift is best represented as a:
a An equal shift of all points
b A shift of all points in the same direction
c A tilting of the yield curve
d A bowing of the yield curve
2. The 3M spot rate is 6% and the 6M spot rate is 5%. As a firm believer in pure expectation yield curve theory, which statement best reflects your beliefs about the 3M rate that will apply in 3 months time?
a The rate will be less than 5%
b The rate will be between 5% and 6%
c The rate will be greater than 6%
d It depends on my own expectation
3. What impact would you expect for a rise in the yield on a regular non-callable fixed coupon bond?
a The price falls, the duration falls, and convexity falls
b The price falls, the duration falls, and convexity rises
c The price falls, the duration rises and convexity rises
d Can't be certain
4. The price of a corporate bond has been observed to fall over the past 3 years. Which is NOT a plausible explanation?
a Approaching maturity
b Rising inflation
c Rising credit rating
d Rising yields
5. Which term best describes the legal contract defining a bond.
a Covenant
b Seniority
c Indenture
d Collateral