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标题: Fixed Income【Session9- Reading 24】习题精选 [打印本页]
作者: optiix    时间: 2012-4-1 15:03     标题: [2012 L3] Fixed Income【Session9- Reading 24】习题精选

Which of the following best describes the basis for relative-value analysis?
A)
Generates rankings of expected returns.
B)
Identifies mispricings.
C)
Identifies the value of corporate bonds relative to government bonds.


Relative value refers to the ranking of fixed-income investments by sectors, structures, issuers, and issues in terms of their expected performance during some future interval.
作者: optiix    时间: 2012-4-1 15:04

Which of the following is the major emphasis of the bottom-up approach of classic relative-value analysis? Identifying:
A)
individual issues that are expected to outperform their peer groups.
B)
high-convexity issues.
C)
optimal allocations to individual issuers.


Bottom-up approaches focus on security by security analyses in the attempt to find those individual issues expected to outperform others.
作者: optiix    时间: 2012-4-1 15:04

In the bond market, relative-value analysis refers to the:
A)
relative market value of each holding to the total value of the portfolio.
B)
methodologies employed to generate rankings of fixed income securities according to various attributes such as sectors and expected performance.
C)
relative risk and return characteristics between a corporations’ common stock and its debt issues.


Relative-value analysis refers to several related methodologies used to rate and rank fixed-income securities.
作者: optiix    时间: 2012-4-1 15:04

In classic relative-value analysis the top-down approach refers to:
A)
ranking the holdings in a corporate bond portfolio according to the relative market value of each asset class, beginning with the highest value.
B)
looking for undervalued assets and ranking them from most to least undervalued.
C)
using large-scale economic information to allocate funds to various corporate asset classes.


Large scale (i.e. macro) economic information concerns data such as inflation, interest rate changes, and the level and direction of the overall economy (both domestic and foreign). Top-down analysis seeks to allocate funds to those issues that would benefit the most from the expected large-scale economic changes/trends.
作者: optiix    时间: 2012-4-1 15:05

Which of the following is an example of a bottom-up approach of classic relative value analysis that would indicate an undervalued issue?
A)
Due to continued strong earnings growth of XMP Corporation, their bond’s credit rating is expected to be upgraded. The manager of a corporate bond portfolio does not believe this is reflected in the current market value.
B)
The manager of a corporate bond portfolio expects the increased debt usage of Corey, Inc., together with the prospect of greater competition and lower profit margins, will lead to a decrease in the credit rating of Corey bonds. These expectations are not reflected in the current market value of the bonds.
C)
General economic conditions indicate the inflation rate will decline over the next year, with the expectation this will result in reducing the required yield for outstanding bonds in all maturity classes.


If a bond’s credit rating is upgraded, the required yield will decline and the market value of the bond will increase. If this event is not currently reflected in the value of the bond then it represents an undervalued security.
作者: optiix    时间: 2012-4-1 15:05

Which of the following statements about cyclical and secular changes in the primary bond market is least accurate?
A)
One factor that can cause structural changes in the bond market is the desire of issuers to minimize financing costs under different yield curve and spread scenarios.
B)
Structural changes in the composition of the bond market can occur rapidly.
C)
Relative corporate bond returns frequently perform best when the supply of bonds is relatively plentiful.


Structural changes occur slowly and have long-term implications for bond portfolio investment decisions. These changes are the result of issuers attempting to minimize their funding costs under different yield curve and spread scenarios.
作者: optiix    时间: 2012-4-1 15:06

Which of the following statements about bond market characteristics is least accurate?
A)
During the 1990s, new bond issuances had narrower spreads and relatively strong returns.
B)
Callable issues are no longer dominant in the high-yield segment of the corporate bond market.
C)
Bond managers adjust their portfolios in response to, or in anticipation of, structural changes in the composition of the bond market.


In the high-yield market segment, callable issues are still dominant, although this may change in time. Bullet and intermediate structures now dominate the other segments.
作者: optiix    时间: 2012-4-1 15:06

Which of the following statements about bullet maturity bonds is CORRECT?
A)
Bullet and intermediate structures are currently dominant in all but the high yield segment of the corporate bond market.
B)
A majority of bullet maturity bonds have sinking funds.
C)
A call feature is an integral part of a bullet maturity bond.


Bullet and intermediate structures currently dominate all but the high yield segment of the corporate bond market. Bullet maturities cannot be callable, putable, or have sinking funds.
作者: optiix    时间: 2012-4-1 15:07

Which of the following statements about bond markets is least accurate?
A)
Although duration tilts can be accomplished with corporate bonds, many bond managers prefer the use of Treasuries to play the yield curve.
B)
Technological advancements, together with increased competition among corporate bond traders, will lead to less liquid global corporate bond markets because the number of issues available will not increase at a fast enough pace to keep up with the increased level of demand.
C)
Qualitative issues that differentiate the management of an international bond portfolio versus a purely domestic one, include, differences in time zones and differences in market structure and conventions.


Liquidity will most likely increase in the future because technological advances in trading systems and communication of information, together with greater competition among bond traders, will lead to higher volumes of bond trading, an important element in liquidity.
作者: optiix    时间: 2012-4-1 15:07

For the management of a fixed-income portfolio, which of the following is an important implication of the increasing supply of corporate bonds within the last decade?
A)
The average bond duration has increased.
B)
Portfolio managers have more ways to satisfy their risk and return objectives.
C)
The relative performance of corporate bonds has decreased.


Greater supply means more issues from which managers can choose. The greater the number of issues provides managers with more opportunities to select securities that match their investment objectives, whether that be to fund some liability stream, or attempt to outperform some benchmark return.
作者: optiix    时间: 2012-4-1 15:08

For the management of a fixed-income portfolio, which of the following is an important implication of the change in the dominant product structure in the primary corporate bond market within the last decade?
A)
Intermediate maturity bonds are scarce and, therefore, demand a premium price.
B)
Securities structured with embedded options are scarce and, therefore, demand a premium price.
C)
Option-free bonds are scarce and, therefore, demand a premium price.


Intermediate structures that are not callable, putable, or sinkable have come to dominate the market.
作者: optiix    时间: 2012-4-1 15:08

Investors that desire to sacrifice liquidity in exchange for increased returns are least likely interested in which of the following types of bonds:
A)
private placements.
B)
smaller-sized issues.
C)
Treasury issues.


Some investors are willing to give up liquidity by investing in issues that possess relatively higher expected returns.
Treasury issues do not fall into this category because they have relatively high liquidity, and little or no liquidity yield premium.
作者: optiix    时间: 2012-4-1 15:09

Investors that are willing to give up additional return in exchange for increased liquidity are least likely interested in which of the following types of bonds:
A)
private placements.
B)
large-sized issues.
C)
Treasury issues.


Many investors are willing to give up additional return in exchange for greater liquidity.  Private placement issues typically have relatively low liquidity.
作者: optiix    时间: 2012-4-1 15:09

The ability to buy or sell quickly at a fair price is best described by which of the following terms?
A)
Liquidity.
B)
Efficiency.
C)
Marketability.


Liquidity is the ability to buy or sell quickly at a fair price.
作者: optiix    时间: 2012-4-1 15:09

Which of the following statements about the rationale for trading in the secondary bond market is least accurate?
A)
Altering the duration of a portfolio because of anticipated yield curve changes is labeled a curve adjustment trade.
B)
The popularity of credit-defense trades is not related to expected levels of economic uncertainty.
C)
The reason to engage in a sector-rotation trade is to shift out of a sector that is expected to underperform on a total return basis, and buy into a sector that is expected to outperform in total return.


Credit-defense trades result from a bond manager’s desire to reduce the portfolio’s exposure to expected credit downgrades. As such, during periods of anticipated economic uncertainty, credit-defense trades normally increase.
作者: optiix    时间: 2012-4-1 15:10

Which of the following is the best rationale for purchasing an issue in the secondary market?
A)
High-default rates in a particular sector.
B)
Expectations of an upgrade in an issuer's credit quality.
C)
Increasing credit risk for a particular bond.


An upgrade in credit quality will result in less credit-premium demanded by investors. Since discount rates and prices move in opposite directions for bonds, credit upgrades will result in an increase in price that will generate a greater total return from the investment.
作者: optiix    时间: 2012-4-1 15:11

Estimates are that more than 50% of all secondary bond trading is due to which type of trade?
A)
Curve adjustment.
B)
Yield/spread pickup.
C)
New issue swaps.


The motivation behind yield/spread pickup trades is to increase yield within specified duration and credit quality bounds. This motivation is estimated to account for more than 50% of all secondary trades.
作者: optiix    时间: 2012-4-1 15:12

Expectations that an issue will experience a quality upgrade that is not already reflected in the current spread could result in which type of trade?
A)
Sector rotation.
B)
Credit defense.
C)
Credit-upside.


A credit-upside trade is motivated by a bond portfolio manager’s expectation that an issuer will experience a credit upgrade, and belief that this is not already reflected in the market value of the issue.
作者: optiix    时间: 2012-4-1 15:12

On-the-run Treasuries are frequently perceived to have superior liquidity. Based on this rational, many bond managers engage in:
A)
curve adjustment trades.
B)
new issue swaps.
C)
credit defense trades.


Relatively large new issues, particularly Treasuries that have just been issued (on-the-run), are believed to have superior liquidity—a rationale for including more of them in the portfolio.
作者: optiix    时间: 2012-4-1 15:13

Which of the following strategies would normally result in the best bond performance?
A)
Buy callable bonds rather than bullets, if a strong bullish bond market is expected.
B)
If a bear bond market is expected, buy callable bonds instead of bullets.
C)
Buy callable bonds when interest rates decline.


Callable bonds generally outperform bullets in a bear bond market because the probability of a call is reduced. As interest rates increase, the value of the embedded option decreases, with a resultant decrease in the differential yield between callable and noncallable bonds. In a bull bond market the call option acts as a resistance point limiting the price appreciation of callable bonds.
作者: optiix    时间: 2012-4-1 15:13

In terms of a long-term investor, which of the following is a potential criticism of not investing in securities with low liquidity? These securities:
A)
offer arbitrage opportunities more frequently.
B)
are less risky.
C)
have to provide higher returns as a compensation for low liquidity.


Less liquid securities must provide a liquidity premium to compensate for the low liquidity.
作者: optiix    时间: 2012-4-1 15:13

Which of the following is a potential criticism of a strategy that invests in securities that are "neglected" by the market? This type of security:
A)
often has low liquidity.
B)
has a lower risk-return tradeoff.
C)
is often overpriced.


Since these securities are "neglected," liquidity is low and transaction costs high.
作者: optiix    时间: 2012-4-1 15:14

Which of the following statements about swaps is CORRECT?
A)
A swap spread is the spread paid by the fixed-rate payer over the seasoned Treasury rate.
B)
In the European market, swap spreads serve as a good proxy for credit spreads.
C)
A swap spread refers to the difference in yield between corporate issues of different quality ratings.


It is because of the relative homogeneity of the European bond market that swap spreads are a good proxy for credit spreads. European issues are generally high in quality and intermediate in maturity. Swap spreads involve the on-the-run Treasury rate, not seasoned issues.
作者: optiix    时间: 2012-4-1 15:14

Which of the following statements about spread analysis is CORRECT?
A)
With quality-spread analysis, one risk when purchasing a security is the spread differential narrowing during the holding period.
B)
Percentage yield analysis uses the ratio between corporate bond yields and government yields and is the only spread analysis that is based on maturity rather than duration.
C)
Using quality-spread analysis, a bond portfolio manager would buy an issue that has a wider spread than what is justified by its intrinsic value.


If an issue trades at a spread that is (believed by the manager to be) higher than is warranted by its intrinsic value, the expectation is that this spread will decrease over time as this fact becomes understood by the market. The risk is that the manager has misjudged the quality of the issue, and that the spread could remain high or even widen further.
作者: optiix    时间: 2012-4-1 15:15

Which of the following market conditions would suggest the use of callable bond structures in a corporate bond portfolio?
A)
Bull bond market.
B)
Bear bond market.
C)
Increasing interest rate volatility and a bull bond market.


In a bear bond market interest rates are increasing causing bond values to decrease thus the probability of an early call decreases. Callable bonds are issued with a higher coupon rate as compared to noncallable bonds to compensate the purchaser for the probability of the bond being called. In a rising interest rate environment callable bonds will not fall in price as much as a comparable option free bond due to the negative convexity of the callable bond in the callable region of the bond. Thus, if portfolio managers expect interest rates to increase, they should buy callable structures instead of option-free bonds in order to capture the higher return of the callable bond since it will not fall in value as much as the non-callable bond.
作者: optiix    时间: 2012-4-1 15:15

One portfolio constraint contributing to market inefficiency in global credit markets is seasonality. Considering the trading patterns of a given mutual fund, which of the following is least likely to reflect seasonality?
A)
Relatively low secondary trading at the end of a month.
B)
Relatively low secondary trading following a portfolio rebalancing.
C)
Relatively high secondary trading following a new primary issue.


Seasonality has to do with monthly, quarterly, or yearly data that appears at regular time intervals. Secondary trading following a new primary issue would not have anything to do with a seasonal pattern of repeating time intervals. The other choices are standard reasons to slow (or speed) transactions on a regular periodic basis that would represent a seasonality pattern.
作者: optiix    时间: 2012-4-1 15:18

The capacity to pay is a relatively more important factor in which of the following types of credit analysis?
A)
Corporate.
B)
Sovereign.
C)
Long-term municipal.


Capacity to pay, often measured by the adequacy of cash flows available to meet interest payments, is the key factor in corporate credit analysis.
作者: optiix    时间: 2012-4-1 15:19

A bond manager deciding against making an otherwise desired secondary transaction because of a desire to minimize portfolio turnover is most likely an example of what type of portfolio constraint?
A)
Seasonality.
B)
Exposure Limits.
C)
Buy and Hold.


A disposition toward lower trading volume can lead to buy-and-hold behavior.
作者: optiix    时间: 2012-4-1 15:19

With regard to credit analysis, the quality of collateral and the servicer are most relevant to which types of securities?
A)
Municipal securities.
B)
Corporate securities.
C)
Asset-backed securities.


The quality of collateral and the servicer is most relevant to the analysis of asset-backed securities.
作者: optiix    时间: 2012-4-1 15:20

The most relevant challenge to bond portfolio managers in the area of credit analysis is related to which of the following issues?
A)
The capacity of corporate issuers to support cash flows needs.
B)
The expansion in the universe of global bonds.
C)
Global economic and political instability.


In order to be effective, managers must establish and support an effective credit analysis system within their managerial domains to assure that appropriate information is available to make the best possible choices. This is becoming increasingly difficult as the global bond universe expands.
作者: jawz    时间: 2012-4-1 15:21

Which of the following statements about classic relative-value analysis is least accurate?
A)
Classic relative-value analysis only uses a top-down micro type approach.
B)
The analytical process has substantially changed due to the recent increases in the amount of available information and technology.
C)
Sector, issuer, and structural analysis are the core of relative-value analysis.


Both the top-down and bottom-up approaches are used with classic relative-value analysis.
作者: jawz    时间: 2012-4-1 15:22

Which of the following comments about relative-value analysis is least accurate?
A)
Relative-value analysis gives bond portfolio managers an analytical structure that allows them to develop a strategic perspective on the global corporate market.
B)
Relative-value analysis is used to rank issues in terms of their expected performance based upon total returns.
C)
Relative-value analysis is consistent with the concept that bond markets are efficient.


If bond markets were perfectly efficient then relative-value analysis would not lead to superior returns on a consistent basis.
作者: jawz    时间: 2012-4-1 15:22

Which of the following tools is thought to suffer from methodological deficiencies thereby rendering it inaccurate, and therefore, of little use?
A)
Mean-reversion analysis.
B)
Percentage yield spread analysis.
C)
Structural analysis.


Percentage yield spread analysis uses the ratio of yields of corporate to government issues of similar duration. However, as so many other factors such as supply and demand, profitability, and liquidity have an effect on corporate yields, this analysis has little usefulness.
作者: jawz    时间: 2012-4-1 15:23

With mean-reversion analysis:
A)
if the current yield spread is greater than the historic mean, the market value of the security will be higher than if the spread were negligible.
B)
statistical tools cannot be utilized to determine if the yield spread is significantly different from the historical mean.
C)
if the current spread of a sector or issue is significantly greater than the historical mean spread, then buy the sector or issue.


Mean-reversion analysis is the most used tool for the analysis of spreads between individual issues and across industry sectors and assumes that spreads will revert to their historic means. If a current spread is greater than its historic mean, then as the issue reverts to its mean, its yield will decline and its market value will therefore increase.
作者: jawz    时间: 2012-4-1 15:23

Edward Justice, CFA, is an analyst for Sierra Funds (Sierra). Justice is investigating the use of relative value methodologies for global corporate bond portfolio management and needs assistance from several Sierra Fund managers and traders. He explains that relative value analysis involves comparing bonds and bond portfolios on characteristics such as sector, issue, and structure. He adds that firms may use a top-down or a bottom-up approach to the analysis. Sierra prefers a top-down approach.
Sierra manages an employee pension fund for Ice Dreams, Inc. (Ice Dreams). Sierra has been doing very little trading in Ice Dreams’ account and has avoided specific structures and foreign bonds entirely. Due to a recent increase in interest rates, there are several accounting losses in the portfolio at this time. Sierra traders have been getting conflicting advice from buy side and sell side analysts and at this point are unsure of the optimal trading strategies for the pension fund. Justin James, a Sierra trader, believes that it is a great time to trade. He suggests that trading out of telecommunications industy bonds and into pharmaceutical industry bonds may enhance returns in the Ice Dreams portfolio. He also believes that insurance industry bonds will see a ratings upgrade in the near future and is contemplating shifting a portion of the portfolio into insurance industry bonds.
Bond manager Mike Steere is interested in the implications of issues such as changes in dominant product structure and new issue supply for fixed-income portfolio managers. In an attempt to understand these issues, he asks Justice several questions. He is specifically interested in the implications of cyclical and secular changes for fixed-income portfolio managers.
Dan Baker is interested in the terminology related to different yield spreads. He states that swap spreads are the difference in the fixed and floating rates in a swap. Ashley Carlton, a Baker colleague at Sierra adds “the option adjusted spread is the spread on corporate securities after removing any embedded options when comparing them to mortgage-backed and U.S. Agency issues.”
Alexis Jones, a Sierra Funds bond trader is considering the following swap deal.
Jones indicates that a key advantage of the swaps spread framework for evaluating corporate bond purchases is “the applicability of swap spreads across the quality spectrum.” William Greavey adds that another key advantage of the framework is “the convergence to a single spread standard derived from swap spreads. “ Both Jones and Greavey believe that the swaps spread framework is an important tool for traders and analysts alike when evaluating corporate bonds.Regarding yield spreads, Carlton and Baker are, respectively:
A)
incorrect; correct.
B)
incorrect; incorrect.
C)
correct; incorrect.


Carlton is correct about the OAS and Baker is incorrect regarding the swap spread. A swap spread is the spread paid by the fixed-rate payer over the rate on the on-the-run Treasury with the same maturity as the swap. The option adjusted spread is the effective spread for the class after removing any embedded options. (Study Session 9, LOS 24.e)
In answer to Steere’s queries, Justice is most likely to indicate that all of the following are implications of both cyclical and secular changes in the corporate bond market EXCEPT:
A)
securities with embedded options will command a premium price due to their scarcity value.
B)
effective duration and aggregate interest-rate risk sensitivity will increase.
C)
asset/liability managers with long horizons may be willing to pay a premium for long-term bonds.


Secular changes show that bullet and intermediate structures dominate the corporate bond market. Implications associated with these product structures:
(Study Session 9, LOS 24.b)

Regarding a swaps framework to evaluate corporate bond purchases, Jones and Greavey are, respectively:
A)
correct; correct.
B)
correct; incorrect.
C)
incorrect; correct.


Jones is incorrect and Greavey is correct. Many market practitioners expect a worldwide convergence to a single spread standard derived from swap spreads. Swap spreads facilitate the comparison of securities across fixed-rate and floating-rate markets, particularly for investment-grade securities. On the negative side, individual investors may not understand swap spreads and they are not applicable across the entire quality spectrum. (Study Session 9, LOS 24.e)
In the trade Jones is considering, the fixed rate corporate bond's spread over LIBOR would be closest to:
A)
50 basis points.
B)
20 basis points.
C)
10 basis points.


The fixed rate corporate bond's spread over LIBOR would be:
Receive from BSC (6.20% + 120 bp)

7.40%


- pay on swap (6.20% + 100 bp)

7.20%


+ receive from swap

LIBOR


Net

LIBOR + 20 bp


(Study Session 9, LOS 24.e)

Justice is contemplating the differences between callable bond and bullet bond strategies. Which of the following statements does NOT accurately describe the relationship between callable bonds and bullet strategies? Callables:
A)
outperform bullets when rates increase due to positive convexity.
B)
do not fully participate when bond markets rally due to the "resistance" level set by the call price.
C)
outperform bullets in bear bond markets because the probability of an early call diminishes.


Callable bonds:
(Study Session 9, LOS 24.e)

James’ trading strategies regarding telecommunications and pharmaceutical industry bonds, and with respect to insurance industry bonds are, respectively:
A)
structure trades; credit defense trades.
B)
sector rotation trades; credit upside trades.
C)
yield/spread pickup trades; credit upside trades.


The first trade that James describes, swapping out of telecommunications bonds and into pharmaceutical bonds because of a belief that the pharmaceutical bonds will perform better, is known as a sector rotation trade. Expecting insurance company bonds to be upgraded, and trading on that expectation, is known as a credit-upside trade. (Study Session 9, LOS 24.d)



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