Utilizing Effective Duration and Conve ...
Yield duration and convexity assume predictable bond cash flows. However, bonds with embedded... 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
So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts.
The fun light-hearted analogies are also a welcome break to some very dry content.
I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
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.
nikhil kumar
2021-06-28
Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
Marwan
2021-06-22
Great support throughout the course by the team, did not feel neglected
Benjamin anonymous
2021-05-10
I loved using AnalystPrep for FRM.
QBank is huge, videos are great.
Would recommend to a friend
Daniel Glyn
2021-03-24
I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
michael walshe
2021-03-18
Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.