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CIRE practice questions: fixed income
Ten CIRE practice questions on fixed income. The blueprint covers bond pricing, current yield, yield to maturity, modified and Macaulay duration, convexity, accrued interest, and yield-curve shapes. Most candidates over-prepare on the YTM rule of thumb and under-prepare on the relationship between duration and price under non-parallel yield-curve shifts. The exam tests intuition over calculation.
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FAQ
Do I need to compute YTM by hand?
No. The CIRE tests the YTM rule of thumb (C plus (F minus P) over n, all divided by (F plus P) over 2) for ballpark answers, and the directional relationship between price and yield. You will not be asked for a 5-decimal YTM. Most exam questions are answerable from the duration formula (price change is approximately negative ModDur times delta y) plus the convexity correction.
What is the difference between modified and Macaulay duration?
Macaulay duration is the weighted average time to cash flow, in years. Modified duration is Macaulay divided by 1 plus y. Modified duration estimates percentage price change for a 100 basis point yield move. The modified version is what you use for price-change problems. Macaulay is what you use for immunization problems.
When does duration fail?
Duration is a first-order approximation. For yield moves above roughly 50 basis points, the convexity correction matters. For yield-curve twists (short rates moving differently from long rates), duration is the wrong tool entirely. The exam will set up a non-parallel-shift scenario and ask which bond is more affected. The answer depends on cash-flow timing, not duration alone.
What about settlement?
Most Canadian fixed-income trades settle T+1 since May 27, 2024. Accrued interest is calculated to the settlement date. The buyer pays accrued interest to the seller. The accrual day count depends on the bond (30/360 for most corporates, actual/actual for most government bonds).
Can I get more fixed-income questions?
Yes. Element 4 plus the fixed-income outcomes in Element 7 give you over 100 questions in the Ciroexam bank. The AI tutor walks through every wrong-answer with the rule and the math.