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Learning Outcome Statements PDF Download
|1. Overview of Embedded Options|
a. describe fixed-income securities with embedded options;
|2. Relationships between the Values of a Callable or Putable Bond, Straight Bond, and Embedded Option|
b. explain the relationships between the values of a callable or putable bond, the underlying option-free (straight) bond, and the embedded option;
c. describe how the arbitrage-free framework can be used to value a bond with embedded options;
|3. Valuation of Default-Free Callable and Putable Bonds|
d. explain how interest rate volatility affects the value of a callable or putable bond;
e. explain how changes in the level and shape of the yield curve affect the value of a callable or putable bond;
f. calculate the value of a callable or putable bond from an interest rate tree;
|4. Option-Adjusted Spread|
g. explain the calculation and use of option-adjusted spreads;
h. explain how interest rate volatility affects option-adjusted spreads;
i. calculate and interpret effective duration of a callable or putable bond;
j. compare effective durations of callable, putable, and straight bonds;
k. describe the use of one-sided durations and key rate durations to evaluate the interest rate sensitivity of bonds with embedded options;
|6. Effective Convexity|
l. compare effective convexities of callable, putable, and straight bonds;
|7. Valuation and Analysis of Capped and Floored Floating-Rate Bonds|
m. calculate the value of a capped or floored floating-rate bond;
|8. Valuation and Analysis of Convertible Bonds|
m. describe defining features of a convertible bond;
n. calculate and interpret the components of a convertible bond's value;
o. describe how a convertible bond is valued in an arbitrage-free framework;
p. compare the risk-return characteristics of a convertible bond with the risk-return characteristics of a straight bond and of the underlying common stock.
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