Free Online CFA Level 1 Mock Exam 8

4. Bonds are most likely to be priced above par in the following situations:

A. Coupon rate < Market discount rate.

B. Coupon rate = Market discount rate.

C. Coupon rate > Market discount rate.

Correct Answer: C

Answer Explanation:

When the coupon rate is greater than the market discount rate, the bond is priced above par. When the coupon rate is less than the market discount rate, the bond is priced at discount. If the coupon rate is equal to the market discount rate, the bond is priced at par.

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5. The method of estimating the required yield to maturity on an illiquid or untraded bond is likely to be called:

A. mix pricing.

B. matrix pricing.

C. average pricing.

Correct Answer: B

Answer Explanation:

Matrix pricing is a method used to estimate the yield to maturity of thinly traded or untraded bonds. In fixed income valuation, there is no such term as hybrid pricing or average pricing.

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Portfolio Management and Wealth Planning

6. Which of the following portfolios is most likely to show the risk and return of its portfolio in the form of a capital market line (CML)?

A. Risk-free asset and market portfolio.

B. Risk-free asset and any risky portfolio.

C. Risky asset and a leveraged portfolio.

Correct Answer: A

Answer Explanation:

The Capital Market Line (CML) is a special case of the Capital Allocation Line (CAL), which includes possible combinations of risk-free assets and market portfolios

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