Financial Ratios Used in Credit Analysis
Key credit analysis measures fall into 4 different groups: Profitability and Cash Flows... Read More
Study Session 14
Reading 42 – Fixed-Income Securities: Defining Elements
– LOS 42a: describe basic features of a fixed-income security– LOS 42b: describe content of a bond indenture
– LOS 42c: compare affirmative and negative covenants and identify examples of each
– LOS 42d: describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities
– LOS 42e: describe how cash flows of fixed-income securities are structured
– LOS 42f: describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender
– LOS 42g: describe different types of bonds and their specific features
Reading 43 – Fixed-Income Markets: Issuance, Trading and Funding
– LOS 43a: describe classifications of global fixed-income markets– LOS 43b: describe the use of interbank offered rates as reference rates in floating-rate debt
– LOS 43c: describe mechanisms available for issuing bonds in primary markets
– LOS 43d: describe secondary markets for bonds
– LOS 43e: describe securities issued by sovereign governments
– LOS 43f: describe securities issued by non-sovereign governments, quasi-government entities, and supranational agencies
– LOS 43g: describe types of debt issued by corporations
– LOS 43h: describe structured financial instruments
– LOS 43i: describe short-term funding alternatives available to banks
– LOS 43j: describe repurchase agreements and the risks associated with them
Reading 44 – Introduction to Fixed-Income Valuation
– LOS 44a: calculate a bond’s price given a market discount rate– LOS 44b: identify the relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity)
– LOS 44c: define spot rates and calculate the price of a bond using spot rates
– LOS 44d: describe and calculate the flat price, accrued interest, and the full price of a bond
– LOS 44e: describe matrix pricing
– LOS 44f: calculate annual yield on a bond for varying compounding periods in a year
– LOS 44g: calculate and interpret yield measures for fixed-rate bonds and floating-rate notes – LOS 44h: calculate and interpret yield measures for money market instruments
– LOS 44i: define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve
– LOS 44j: define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates
– LOS 44k: compare, calculate, and interpret yield spread measures
Reading 45 – Introduction to Asset-Backed Securities
– LOS 45a: explain benefits of securitization for economies and financial markets– LOS 45b: describe securitization, including the parties involved in the process and the roles they play
– LOS 45c: describe typical structures of securitizations, including credit tranching and time tranching
– LOS 45d: describe types and characteristics of residential mortgage loans that are typically securitized
– LOS 45e: describe types and characteristics of residential mortgage-backed securities, including mortgage pass-through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type
– LOS 45f: define prepayment risk and describe the prepayment risk of mortgage-backed securities
– LOS 45g: describe characteristics and risks of commercial mortgage-backed securities
– LOS 45h: describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and risks of each type
– LOS 45i: describe collateralized debt obligations, including their cash flows and risks
Study Session 15
Reading 46 – Understanding Fixed-Income Risk and Return
– LOS 46a: calculate and interpret the sources of return from investing in a fixed-rate bond– LOS 46b: define, calculate, and interpret Macaulay, modified, and effective durations
– LOS 46c: explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options
– LOS 46d: define key rate duration and describe the use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve
– LOS 46e: explain how a bond’s maturity, coupon, and yield level affect its interest rate risk
– LOS 46f: calculate the duration of a portfolio and explain the limitations of portfolio duration
– LOS 46g: calculate and interpret the money duration of a bond and price value of a basis point (PVBP)
– LOS 46h: calculate and interpret approximate convexity and distinguish between approximate and effective convexity
– LOS 46i: estimate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity
– LOS 46j: describe how the term structure of yield volatility affects the interest rate risk of a bond
– LOS 46k: describe the relationships among a bond’s holding period return, its duration, and the investment horizon
– LOS 46l: explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes
Reading 47 – Fundamentals of Credit Analysis
– LOS 47a: describe credit risk and credit-related risks affecting corporate bonds– LOS 47b: describe default probability and loss severity as components of credit risk
– LOS 47c: describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding
– LOS 47d: distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching”
– LOS 47e: explain risks in relying on ratings from credit rating agencies
– LOS 47f: explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis
– LOS 47g: calculate and interpret financial ratios used in credit analysis
– LOS 47h: evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry
– LOS 47i: describe factors that influence the level and volatility of yield spreads
– LOS 47j: explain special considerations when evaluating the credit of high yield, sovereign, and non-sovereign government debt issuers and issues
Study Session 14
Reading 42 – Fixed-Income Securities: Defining Elements
– LOS 42a: describe basic features of a fixed-income security– LOS 42b: describe content of a bond indenture
– LOS 42c: compare affirmative and negative covenants and identify examples of each
– LOS 42d: describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities
– LOS 42e: describe how cash flows of fixed-income securities are structured
– LOS 42f: describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender
– LOS 42x: describe different types of bonds and their specific features
Reading 43 – Fixed-Income Markets: Issuance, Trading and Funding
– LOS 43a: describe classifications of global fixed-income markets– LOS 43b: describe the use of interbank offered rates as reference rates in floating-rate debt
– LOS 43c: describe mechanisms available for issuing bonds in primary markets
– LOS 43d: describe secondary markets for bonds
– LOS 43e: describe securities issued by sovereign governments
– LOS 43f: describe securities issued by non-sovereign governments, quasi-government entities, and supranational agencies
– LOS 43g: describe types of debt issued by corporations
– LOS 43h: describe structured financial instruments
– LOS 43i: describe short-term funding alternatives available to banks
– LOS 43j: describe repurchase agreements and the risks associated with them
Reading 44 – Introduction to Fixed-Income Valuation
– LOS 44a: calculate a bond’s price given a market discount rate – LOS 44b: identify the relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity) – LOS 44c: define spot rates and calculate the price of a bond using spot rates– LOS 44d: describe and calculate the flat price, accrued interest, and the full price of a bond
– LOS 44e: describe matrix pricing
– LOS 44f: calculate annual yield on a bond for varying compounding periods in a year
– LOS 44g: calculate and interpret yield measures for fixed-rate bonds and floating-rate notes – LOS 44h: calculate and interpret yield measures for money market instruments
– LOS 44i: define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve
– LOS 44j: define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates
– LOS 44k: compare, calculate, and interpret yield spread measures
Reading 45 – Introduction to Asset-Backed Securities
– LOS 45a: explain benefits of securitization for economies and financial markets– LOS 45b: describe securitization, including the parties involved in the process and the roles they play
– LOS 45c: describe typical structures of securitizations, including credit tranching and time tranching
– LOS 45d: describe types and characteristics of residential mortgage loans that are typically securitized
– LOS 45e: describe types and characteristics of residential mortgage-backed securities, including
mortgage pass-through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type
– LOS 45f: define prepayment risk and describe the prepayment risk of mortgage-backed securities
– LOS 45g: describe characteristics and risks of commercial mortgage-backed securities
– LOS 45h: describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and risks of each type
– LOS 45i: describe collateralized debt obligations, including their cash flows and risks
Study Session 15
Reading 46 – Understanding Fixed-Income Risk and Return
– LOS 46a: calculate and interpret the sources of return from investing in a fixed-rate bond– LOS 46b: define, calculate, and interpret Macaulay, modified, and effective durations
– LOS 46c: explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options
– LOS 46d: define key rate duration and describe the use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve
– LOS 46e: explain how a bond’s maturity, coupon, and yield level affect its interest rate risk
– LOS 46f: calculate the duration of a portfolio and explain the limitations of portfolio duration
– LOS 46g: calculate and interpret the money duration of a bond and price value of a basis point (PVBP)
– LOS 46h: calculate and interpret approximate convexity and distinguish between approximate and effective convexity
– LOS 46i: estimate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity
– LOS 46j: describe how the term structure of yield volatility affects the interest rate risk of a bond
– LOS 46k: describe the relationships among a bond’s holding period return, its duration, and the investment horizon
– LOS 46l: explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes
Reading 47 – Fundamentals of Credit Analysis
– LOS 47a: describe credit risk and credit-related risks affecting corporate bonds– LOS 47b: describe default probability and loss severity as components of credit risk
– LOS 47c: describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding
– LOS 47d: distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching”
– LOS 47e: explain risks in relying on ratings from credit rating agencies
– LOS 47f: explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis
– LOS 47g: calculate and interpret financial ratios used in credit analysis
– LOS 47h: evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry
– LOS 47i: describe factors that influence the level and volatility of yield spreads
– LOS 47j: explain special considerations when evaluating the credit of high yield, sovereign, and non-sovereign government debt issuers and issues
2024 Curriculum
Learning Module 1 – Fixed-Income Instrument Features
LOS a: describe the features of a fixed-income securityLOS b: describe the contents of a bond indenture and contrast affirmative and negative covenants
Learning Module 2 – Fixed-Income Cash Flows and Types
LOS a: describe common cash flow structures of fixed-income instruments and contrast cash flow contingency provisions that benefit issuers and investorsLOS b: describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities
Learning Module 3 – Fixed-Income Issuance and Trading
LOS a: describe fixed-income market segments and their issuer and investor ParticipantsLOS b: describe types of fixed-income indexes
LOS c: compare primary and secondary fixed-income markets to equity Markets
Learning Module 4 – Fixed-Income Markets for Corporate Issuers
LOS a: compare short-term funding alternatives available to corporations and financial institutionsLOS b: describe repurchase agreements (repos), their uses, and their benefits and risks
LOS c: contrast the long-term funding of investment-grade versus high-yield corporate issuers
Learning Module 5 – Fixed-Income Markets for Government Issuers
LOS a: describe funding choices by sovereign and non-sovereign governments, quasi-government entities, and supranational agenciesLOS b: contrast the issuance and trading of government and corporate fixed-income instruments
Learning Module 6 – Fixed-Income Bond Valuation: Prices and Yields
LOS a: calculate a bond’s price given a yield-to-maturity on or between coupon datesLOS b: identify the relationships among a bond’s price, coupon rate, maturity, and yield-to-maturity
LOS c: describe matrix pricing
Learning Module 7 – Yield and Yield Spread Measures for Fixed-Rate Bonds
LOS a: calculate annual yield on a bond for varying compounding periods in a yearLOS b: compare, calculate, and interpret yield and yield spread measures for fixed-rate bonds
Learning Module 8 – Yield and Yield Spread Measures for Floating-Rate Instruments
LOS a: calculate and interpret yield spread measures for floating-rate instrumentsLOS b: calculate and interpret yield measures for money market instruments.
Learning Module 9 – The Term Structure of Interest Rates: Spot, Par, and Forward Curves
LOS a: define spot rates and the spot curve, and calculate the price of a bond using spot rates.LOS b: define par and forward rates, and calculate par rates, forward rates from spot rates, spot rates from forward rates, and the price of a bond using forward rates.
LOS c: compare the spot curve, par curve, and forward curve.
Learning Module 10 – Interest Rate Risk and Return
LOS a: calculate and interpret the sources of return from investing in a fixed-rate bond.LOS b: describe the relationships among a bond’s holding period return, its Macaulay duration, and the investment horizon.
LOS c: define, calculate, and interpret Macaulay duration.
Learning Module 11 – Yield-Based Bond Duration Measures and Properties
LOS a: define, calculate, and interpret modified duration, money duration, and the price value of a basis point (PVBP).LOS b: explain how a bond’s maturity, coupon, and yield level affect its interest rate risk.
Learning Module 12 – Yield-Based Bond Convexity and Portfolio Properties
LOS a: calculate and interpret convexity and describe the convexity adjustment.LOS b: calculate the percentage price change of a bond for a specified change in yield, given the bond’s duration and convexity.
LOS c: calculate portfolio duration and convexity and explain the limitations of these measures.
Learning Module 13 – Curve-Based and Empirical Fixed-Income Risk Measures
LOS a: explain why effective duration and effective convexity are the most appropriate measures of interest rate risk for bonds with embedded options.LOS b: calculate the percentage price change of a bond for a specified change in benchmark yield, given the bond’s effective duration and convexity.
LOS c: define key rate duration and describe its use to measure price sensitivity of fixed-income instruments to benchmark yield curve changes.
LOS d: describe the difference between empirical duration and analytical duration.
Learning Module 14 – Credit Risk
LOS a: describe credit risk and its components, probability of default and loss given default.LOS b: describe the uses of ratings from credit rating agencies and their limitations.
LOS c: describe macroeconomic, market, and issuer-specific factors that influence the level and volatility of yield spreads.
Learning Module 15 – Credit Analysis for Government Issuers
LOS a: explain special considerations when evaluating the credit of sovereign and non-sovereign government debt issuers and issues.Learning Module 16 – Credit Analysis for Corporate Issuer
LOS a: describe the qualitative and quantitative factors used to evaluate a corporate borrower’s creditworthiness.LOS b: calculate and interpret financial ratios used in credit analysis.
LOS c: describe the seniority rankings of debt, secured versus unsecured debt and the priority of claims in bankruptcy, and their impact on credit ratings.
Learning Module 17 – Fixed-Income Securitization
LOS a: explain benefits of securitization for issuers, investors, economies, and financial marketsLOS b: describe securitization, including the parties and the roles they play
Learning Module 18 – Asset-Backed Security (ABS) Instrument and Market Features
LOS a: describe characteristics and risks of covered bonds and how they differ from other asset-backed securities.LOS b: describe typical credit enhancement structures used in securitizations
LOS c: describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and risks of each type.
LOS d: describe collateralized debt obligations, including their cash flows and risks.
Learning Module 19 – Mortgage-Backed Security (MBS) Instrument and Market Features
LOS a: define prepayment risk and describe time tranching structures in securitizations and their purpose.LOS b: describe fundamental features of residential mortgage loans that are securitized. LOS c: describe types and characteristics of residential mortgage-backed securities, including mortgage pass-through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type.
LOS d: describe characteristics and risks of commercial mortgage-backed securities.
Sergio Torrico
2021-07-23
Excelente para el FRM 2
Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé
AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
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The fun light-hearted analogies are also a welcome break to some very dry content.
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Kriti Dhawan
2021-07-16
A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them.
Thank you ! Grateful I saw this at the right time for my CFA prep.
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2021-06-28
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Marwan
2021-06-22
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2021-05-10
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Daniel Glyn
2021-03-24
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2021-03-18
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