2019 CFA level 3 qbank r 24 25 yield curve str credit str questions

10/12/2018 Learning Management System Question #1 of 19 Je Nordby is a currency trader at a regional investment bank in Baltimore, MD His research department is anticipating a stable yield curve environment for the remainder of the year and Japan's central bank will continue to depress the value of the Yen versus the Dollar for the near future As a result of his team's forecast, Je decides to enter into a Yen carry trade with the U.S dollar The position that Je used to execute his strategy is most likely: in A) Borrowing at the lower Yen rate, converting the Yen to dollars and purchasing U.S Treasuries en tre B) Borrowing at the U.S short-term rate, converting the dollar to Yen and purchasing Yen Gov’t securities C) Borrowing at the higher dollar rate, converting the dollars to Yen and purchasing Yen m Question #2 of 19 bo ok c Gov’t securities As a result of the continued global low interest since the nancial crisis of 2008, investors have o been investing in larger amounts of emerging market corporate bonds to nd increased yields w w However, investing in emerging market corporate bonds is very di erent than investing in developed market corporate bonds w The following statement correctly identi es these general di erences: A) Emerging market bonds have an increased concentration in commodities and banking compared to developed market bonds B) Since the most recent nancial crisis, the developed bond market is overcontrated in government issued bonds as compared to emerging market capital markets as i f b d C) Developed market bonds tend to have lower average credit quality compared to emerging market bonds https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 1/8 10/12/2018 Learning Management System Question #3 of 19 Tara Timura is a new xed income analyst for a U.S bond fund She has only been at the rm for a few weeks and has asked to assist the lead portfolio manager in modeling the rm's yield curve quarterly forecast Modeling the yield curve for xed income professionals is complicated because: A) Observations are normally consistent with the neighboring values which helps to reduce the complexity associated with yield curve modeling B) Gaps in maturities are common and must be interpolated, increasing model complexity .in C) Luckily, di erences in accounting rarely impact bond prices, so modeling complexity is en tre reduced bo ok c Question #4 of 19 Global portfolio managers can often hedge emerging market currency risk by all of the following, except: A) selling currency forwards m B) selling currency futures w w o C) swapping the foreign currency for domestic currency of the investor w Question #5 of 19 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 2/8 10/12/2018 Learning Management System Derek Main is a recent college graduate and has been hired as a full-time junior analyst for Falcon Financial, a rm that specializes in providing xed income investment advice to local pensions Main has been assigned to analyze a newly issued putable bond Main calculates various credit spread measures to begin his analysis The calculated spread measures are as follows: G – Spread 322 I – Spread 325 Z – Spread 334 in Main notices that he forgot to calculate an OAS measure, would the OAS be similar to, lower A) OAS would be lower than the Z spread B) OAS would be higher than the Z Spread m Question #6 of 19 bo ok c C) OAS would be similar to the Z spread en tre than, or higher than the Z spread measure: Laura Timura is the chief risk manager for Quanta Financial, a U.K based consulting rm that o specializes in risk management strategies for xed income investors A large endowment w w recently received a signi cant holding in a publicly traded gold mining stock and has hired Quanta to help them hedge this position until they can sell the shares in years w Quanta has recommended a hedging strategy to minimize tail risk that most likely includes: A) selling put options on gold futures contracts B) purchasing calls on gold futures C) buying credit spread options on the bonds of gold miners they nd least attractively valued Question #7 of 19 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 3/8 10/12/2018 Learning Management System David Stephen is a Fixed Income Strategist for a large hedge fund After extensive analysis and research, Stephen is predicting an extremely stable yield curve environment for the next few quarters that will remain upward sloping Assuming Stephen's prediction is correct, what active management strategy would Stephen least likely pursue? A) Riding the yield curve B) The carry trade .in C) Buying convexity by shifting to a barbell strategy en tre Question #8 of 19 If a new government bond is issued with a negative coupon rate due to low rates of interest, the duration of the new bond will: bo ok c A) not be a ected by its negative coupon rate B) be shorter than its maturity m C) be longer than its maturity .o Question #9 of 19 w w Bill Mclaughlin is a xed income consultant based in the US Last year, he forecasted very little changes in the yield curve for the next 14 months with a normal yield curve Mclaughlin w concentrated his portfolio on 10-Year US Treasury Bonds that had a 2.25% coupon and he purchased his holdings at an average price of 100.38 Mclaughlin expected to sell the bonds in one year at 101.92 Mclaughlin selected the 10-year maturities because they were the steepest part of the yield curve that he could purchase since he was constrained to a 10-year maturity from the IPS At the start of last year, the expected rolling yield on the portfolio was closest to: A) 2.24% B) 1.05% C) 3.74% https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 4/8 10/12/2018 Learning Management System Question #10 of 19 Valerie is the investment strategist for a local nancial advisor and is thinking of making tactical changes to her xed income investment model Valerie decides to match the primary risk factor of her target benchmark but also take advantage of an expected increase in yield curvature A) Create a bullet portfolio that is focused on the middle of the yield curve B) Short the barbell and long intermediate-term bonds en tre in C) Create a butter y portfolio Question #11 of 19 Gerhard Thompson is a xed income PM for a large investment consulting rm based in the US bo ok c and has spent the last few weeks analyzing the bond market, speci cally focusing on yield curve forecasting Thompson's forecast is for the yield curve to remain relatively stable for the rst half of the year The investment strategy that Thompson is most likely to follow over the next few months, assuming his forecast is correct, is: m A) replacing callable bonds with straight bullet bonds .o B) selling options indirectly by purchasing Mortgage Backed Securities (MBS) w w w C) buying options indirectly by selling MBS Question #12 of 19 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 5/8 10/12/2018 Learning Management System Randolph David has just won a Request For Proposal to manage a portion of a large multinational corporation's xed income portfolio that totals $25 million David is preparing to implement the portfolio and he is now wondering if he should make a temporary tactical adjustment to take advantage of an expected steepening of the yield curve with a curvature decrease David forecasts partial durations of his original portfolio and his proposed portfolio (see PVBP below) Key Rate PVBPs year year year year 10 year 0049 0061 0135 0136 Tactical Portfolio 0087 0030 0065 0146 in Original Portfolio a curvature decrease is: A) David should select the original portfolio en tre The most optimal portfolio assuming David is correct and the yield curve steepens and also has bo ok c B) David should invest 50% in the original portfolio and 50% in the tactical portfolio m C) David should select the tactical portfolio .o Question #13 of 19 A credit investor has been conducting extensive research on incorporating ESG considerations w w into his security selection in the technology sector The investor has created a custom benchmark consisting of corporate technology bonds and his goal is to outperform the w benchmark Which credit investment strategy is most appropriate for the credit investor to follow? A) Top-down approach B) Bottom-up approach C) Multi-factor approach that focuses on predicting economic cycles Question #14 of 19 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 6/8 10/12/2018 Learning Management System Fixed Income Portfolio managers can use butter y spreads to take advantage of changes in curvature of the yield curve A butter y spread trade that will pro t from a relative decrease in intermediate rates is: A) long the 2- and 30-Year yield, short the 10-Year yield B) short the 2- and 10-Year yield, long the 30-Year yield C) short the 2- and 30-Year yield, long the 10-Year yield in Question #15 of 19 en tre Sunil Ranieel is an investment-grade xed income investment strategist for a large pension fund based in the UK Ranieel was at a recent luncheon and was describing his investment process to some local college students at his lunch table Ranieel's investment process will primarily be focused on: bo ok c A) collateral valuation B) interest rates .o m C) debt covenants w w Question #16 of 19 There are potential bene ts for a corporate bond portfolio manager to include CDOs in their w portfolio except: A) relative value opportunities B) diversi cation C) leverage opportunities Question #17 of 19 Bid-ask spreads have historically been used to assess liquidity in xed income markets However, this indicator has proven to be less reliable primarily because: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 7/8 10/12/2018 Learning Management System A) of increased assets under management in Fixed-Income ETFs B) of reduced spread sensitivity to fund out ows C) bond dealers and brokers generally hold much less inventory than in the past because of regulatory and capital constraints Question #18 of 19 Susan Walrad has currently been hired as a summer intern for a prestigious investment bank in and wants to impress her boss Susan learns that her boss, Ted, is currently preparing for an upcoming meeting with one of their top clients to discuss the performance of bullet and barbell en tre investment strategies under di erent yield curve scenarios Susan talks with Ted and learns that Ted is going to recommend an investment strategy that works best in an increased interest rate volatility environment bo ok c The strategy that Ted would most likely select: A) a barbell strategy consisting of buying 5-year and 20-year Treasury government bonds B) a carry trade .o m C) a bullet strategy that will only purchase a 10-Year Treasury government bond w w Question #19 of 19 w A bond portfolio manager using the bottom-up approach to security selection would most likely begin their analysis by focusing on: A) bonds that have comparable credit risk B) average credit spreads C) macro factors that drive interest rates https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83450560/print 8/8 ... in curvature of the yield curve A butter y spread trade that will pro t from a relative decrease in intermediate rates is: A) long the 2- and 30 -Year yield, short the 10-Year yield B) short the... comparable credit risk B) average credit spreads C) macro factors that drive interest rates https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 9256 15029a3fd/practice /qbank/ 24 038 518/quiz/ 834 50560/print... manager in modeling the rm's yield curve quarterly forecast Modeling the yield curve for xed income professionals is complicated because: A) Observations are normally consistent with the neighboring