- CFA Exams
- Dec. 2020 Level 1
- Study Session 15. Fixed Income II
- Reading 46. Understanding Fixed-Income Risk and Return

### Reading 46. Understanding Fixed-Income Risk and Return

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### Learning Outcome Statements

Reading 46. Understanding Fixed-Income Risk and Return | |
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1. Sources of Returna. calculate and interpret the sources of return from investing in a fixed-rate bond; | |

2. Macaulay, Modified and Effective Durationsb. define, calculate, and interpret Macaulay, modified, and effective durations;c. explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options;
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3. Properties of Bond Duratione. explain how a bond's maturity, coupon, and yield level affect its interest rate risk; | |

4. Bond Portfolio Durationf. 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 Pointg. calculate and interpret the money duration of a bond and price value of a basis point (PVBP); | |

6. Bond Convexityh. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;
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7. Interest Rate Risk and the Investment Horizonj. describe how the term structure of yield volatility affects the interest rate risk of a bond;
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8. Credit and Liquidity Riskl. 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. |