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Learning Outcome Statements PDF Download
|1. Sources of Return|
a. calculate and interpret the sources of return from investing in a fixed-rate bond;
|2. Macaulay, Modified and Effective Durations|
b. 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;
d. 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|
e. explain how a bond's maturity, coupon, and yield level affect its interest rate risk;
|4. Bond Portfolio Duration|
f. 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|
g. calculate and interpret the money duration of a bond and price value of a basis point (PVBP);
|6. Bond Convexity|
h. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;
i. estimate 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|
j. describe how the term structure of yield volatility affects the interest rate risk of a bond;
k. describe the relationships among a bond's holding period return, its duration, and the investment horizon;
|8. Credit and Liquidity Risk|
l. 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.
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