- CFA Exams
- 2023 Level I
- Topic 6. Fixed Income
- Learning Module 46. Understanding Fixed-Income Risk and Return
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Learning Outcome Statements PDF Download
|1. Sources of Return|
calculate and interpret the sources of return from investing in a fixed-rate bond;
|2. Macaulay, Modified and Effective Durations|
define, calculate, and interpret Macaulay, modified, and effective durations;
explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options;
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;
|3. Properties of Bond Duration|
explain how a bond's maturity, coupon, and yield level affect its interest rate risk;
|4. Bond Portfolio Duration|
calculate the duration of a portfolio and explain the limitations of portfolio duration;
|5. Money Duration of a Bond and the Price Value of a Basis Point|
calculate and interpret the money duration of a bond and price value of a basis point (PVBP);
|6. Bond Convexity|
calculate and interpret approximate convexity and compare approximate and effective convexity;
calculate the percentage price change of a bond for a specified change in yield, given the bond's approximate duration and convexity;
|7. Interest Rate Risk and the Investment Horizon|
describe how the term structure of yield volatility affects the interest rate risk of a bond;
describe the relationships among a bond's holding period return, its duration, and the investment horizon;
|8. Credit and Liquidity Risk|
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;
|9. Empirical Duration|
describe the difference between empirical duration and analytical duration.
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