- CFA Exams
- Dec. 2020 Level 2
- Study Session 12. Fixed Income I
- Reading 32. The Term Structure and Interest Rate Dynamics
Reading 32. The Term Structure and Interest Rate Dynamics
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Learning Outcome Statements
| Reading 32. The Term Structure and Interest Rate Dynamics | |
|---|---|
| 1. The Forward Rate Model a. describe relationships among spot rates, forward rates, yield to maturity, expected and realized returns on bonds, and the shape of the yield curve; | |
| 2. Yield to Maturity b. describe the forward pricing and forward rate models and calculate forward and spot prices and rates using those models; | |
| 3. Yield Curve Movement, Forward Curve and Rolling Down the Yield Curve c.describe how zero-coupon rates (spot rates) may be obtained from the par curve by bootstrapping; d. describe the assumptions concerning the evolution of spot rates in relation to forward rates implicit in active bond portfolio management; e. describe the strategy of riding the yield curve; | |
| 4. The Swap Curve (LIBOR Curve) f. explain the swap rate curve and why and how market participants use it in valuation; g. calculate and interpret the swap spread for a given maturity; h. describe the Z-spread; i. describe the TED and Libor-OIS spreads; | |
| 5. Traditional Theories of the Term Structure of Interest Rates j. explain traditional theories of the term structure of interest rates and describe the implications of each theory for forward rates and the shape of the yield curve; | |
| 6. Modern Term Structure Models k. describe modern term structure models and how they are used; | |
| 7. Yield Curve Factor Models l. explain how a bond's exposure to each of the factors driving the yield curve can be measured and how these exposures can be used to manage yield curve risks; m. explain the maturity structure of yield volatilities and their effect on price volatility. |