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    • 9 Sections
    • 63 Lessons
    • 53 Weeks
    Expand all sectionsCollapse all sections
    • CHAPTER 1: OVERVIEW OF FIXED INCOME SECURITIES
      5
      • 1.1
        1.1 Basic Features of a Fixed-Income Securities
        52 Weeks
      • 1.2
        1.2 Types of Fixed Income Securities
        53 Weeks
      • 1.3
        1.3 Legal, Regulatory and Tax Considerations on the Issuance and Trading of Fixed Income Securities
        53 Weeks
      • 1.4
        1.4 Structure of Bond’s Cash Flows and Bonds with Contingency Provisions
        52 Weeks
      • 1.5
        1.5 Risks Associated with Fixed Income Securities
        53 Weeks
    • CHAPTER 2: FIXED-INCOME MARKETS: ISSUANCE, TRADING AND FUNDING
      3
      • 2.1
        2.1 Introduction
        53 Weeks
      • 2.2
        2.2 Classification of Global Fixed Income Markets
        53 Weeks
      • 2.3
        2.3 The Issuance, Trading and Funding of the Fixed-Income Securities
        53 Weeks
    • CHAPTER 3: FUNDAMENTALS OF FIXED INCOME VALUATION
      10
      • 3.1
        3.1 Introduction
        53 Weeks
      • 3.2
        3.2 Determination of Price of the Bond Given a Market Discount Rate
        53 Weeks
      • 3.3
        3.3 Relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity)
        30 Minutes
      • 3.4
        3.4 Bond Price Quotation
        53 Weeks
      • 3.5
        3.5 Matrix Pricing of a Bond
        30 Minutes
      • 3.6
        3.6 Yield Measures for Fixed-Rate Bonds, Floating-Rate Notes, and Money Market Instruments
        53 Weeks
      • 3.7
        3.7 Term Structure of Interest Rate
        53 Weeks
      • 3.8
        3.8 Spot Curve, Yield Curve on Coupon Bonds, Par Curve, and Forward Curve
        53 Weeks
      • 3.9
        3.9 The Maturity Structure of Interest Rates
        53 Weeks
      • 3.10
        3.10 Bond Refinancing/Refunding
        53 Weeks
    • CHAPTER 4: FIXED INCOME RISK AND RETURN
      9
      • 4.1
        4.1 Introduction
        53 Weeks
      • 4.2
        4.2 Return from Investing in a Fixed-Income Bond
        53 Weeks
      • 4.3
        4.3 Bond Duration Measures
        53 Weeks
      • 4.4
        4.4 Effective duration as a Measure of Interest rate risk for bonds with embedded options
        30 Minutes
      • 4.5
        4.5 Key rate durations as a Measure of sensitivity of bonds to changes in the shape of the benchmark yield curve
        30 Minutes
      • 4.6
        4.6 Effect of a bond’s maturity, coupon, embedded options, and yield level on its interest rate risk
        53 Weeks
      • 4.7
        4.7 Bond Convexity
        53 Weeks
      • 4.8
        4.8 Interest rate risk and the investment horizon
        53 Weeks
      • 4.9
        4.9 Effect of changes in credit spread and liquidity on yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes
        53 Weeks
    • CHAPTER 5: CREDIT RISK MANAGEMENT
      4
      • 5.1
        5.1 Introduction
        30 Minutes
      • 5.2
        5.2 Credit Risk
        53 Weeks
      • 5.3
        5.3 Financial Ratios Used in Corporate Debt Analysis
        53 Weeks
      • 5.4
        5.4 Credit Risk and Return: Yields and Spreads
        53 Weeks
    • CHAPTER 6: THE TERM STRUCTURE AND INTEREST RATE DYNAMICS
      7
      • 6.1
        6.1 Introduction
        53 Weeks
      • 6.2
        6.2 Relationships among Spot Rates, Forward Rates, Yield to Maturity, Expected and Realized Returns on Bonds, and the Shape of the Yield Curve
        30 Minutes
      • 6.3
        6.3 Forward Pricing and Forward Rate Models: Determination of Forward and Spot Prices and Rates using those Models
        53 Weeks
      • 6.4
        6.4 Yield Curve Movement and The Forward Curve
        53 Weeks
      • 6.5
        6.5 The Swap Rate Curve
        53 Weeks
      • 6.6
        6.6 Review of Traditional Theories of the Term Structure of Interest Rates and their Implications to Forward Rates and the Shape of the Yield Curve
        53 Weeks
      • 6.7
        6.7 Modern Term Structure Models
        53 Weeks
    • CHAPTER 7: THE ARBITRAGE-FREE VALUATION FRAMEWORK
      6
      • 7.1
        7.1 Introduction
        53 Weeks
      • 7.2
        7.2 Overview of Arbitrage Valuation of a Fixed-Income Instrument
        53 Weeks
      • 7.3
        7.3 Computation of the arbitrage-free value of an option-free, fixed-rate coupon bond
        53 Weeks
      • 7.4
        7.4 Binomial Interest Rate Tree Framework
        53 Weeks
      • 7.5
        7.5 Zero-Coupon Yield Curve, Arbitrage-Free Valuation and Pathwise Valuation
        53 Weeks
      • 7.6
        7.6 Monte Carlo Forward-Rate Simulation and Its Application
        53 Weeks
    • CHAPTER 8: VALUATION AND ANALYSIS OF BONDS WITH EMBEDDED OPTIONS
      10
      • 8.1
        8.1 Introduction
        30 Minutes
      • 8.2
        8.2 Overview of Fixed-Income Securities with Embedded Options
        53 Weeks
      • 8.3
        8.3 Valuation and analysis of callable and putable bonds
        53 Weeks
      • 8.4
        8.4 Effect of Interest Rate Volatility on the Value of a Callable or a Putable Bond
        53 Weeks
      • 8.5
        8.5 Effect of Changes in the Level and Shape of the Yield Curve on the Value of a Callable or a Putable Bond
        30 Minutes
      • 8.6
        8.6 Valuation and Analysis of Callable and Putable Bonds with Interest Rate Volatility
        53 Weeks
      • 8.7
        8.7 Bond’s Effective Duration in Practice
        30 Minutes
      • 8.8
        8.8 Effective Convexities of Callable, Putable, and Straight Bonds
        30 Minutes
      • 8.9
        8.9 Determination of the Value of a Capped or Floored Floating-Rate Bond
        30 Minutes
      • 8.10
        8.10 Valuation and Analysis of Convertible Bonds
        30 Minutes
    • CHAPTER 9: CREDIT ANALYSIS MODELS
      9
      • 9.1
        9.1 Introduction
        30 Minutes
      • 9.2
        9.2 Traditional Credit Models
        30 Minutes
      • 9.3
        9.3 Strengths and Weaknesses of Credit Ranking
        30 Minutes
      • 9.4
        9.4 Structural models of corporate credit risk
        30 Minutes
      • 9.5
        9.5 Reduced form models of corporate credit risk
        30 Minutes
      • 9.6
        9.6 Assumptions, strengths, and weaknesses of both structural and reduced form models of corporate credit risk
        30 Minutes
      • 9.7
        9.7 Term structure of credit spreads
        30 Minutes
      • 9.8
        9.8 Credit analysis required for asset-backed securities
        30 Minutes
      • 9.9
        9.9 Analysis of corporate debt
        30 Minutes

    Fixed Income Investments Analysis

    Curriculum

    1.1 Basic Features of a Fixed-Income Securities

    Based on total market value, fixed-income securities constitute the most prevalent means of raising capital globally.

    A fixed-income security is a financial obligation of an entity (the issuer) that promises to pay a specified sum of money at specified future dates.

    A fixed-income security is an instrument that allows governments, companies, and other types of issuers to borrow money from investors. Any borrowing of money is debt.

    The terms “fixed-income securities,” “debt securities,” and “bonds” are often used interchangeably.

    Securitised bonds are created from a process called “securitisation,” which involves moving assets into a special legal entity.

    This legal entity then uses the assets (such as mortgages, auto loans, student loans, credit card receivables, etc.) as guarantees to back (secure) bond issue, leading to the creation of securities bonds.

    There are three important elements when investing in a fixed-income security:

    • The bond features, including the issuer, maturity, par value, coupon rate and frequency, and currency denomination.
    • The legal, regulatory, and tax considerations.
    • The contingency provisions that may affect the bond’s scheduled cash flows.

    All bonds, whether they are traditional or securitised bonds, are characterised by the same basic features.

    Creditworthiness

    • Based on creditworthiness, bonds can be investment-grade or non-investment-grade (high yield, speculative).
    • The three largest credit rating agencies are Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings. Investment-grade bonds are Baa3 or BBB– or higher.
    • Higher-grade bonds are expected to have lower credit risk.

    Issuers

    • Supranational organisation – include international organizations such as world bank, IMF, United Nations, etc.
    • Sovereign (national) government – governments usually issue debt (treasury bond and bills) through the central banks.
    • Non-sovereign (local) government – these are entities that have government guarantee such as municipal or local governements (county governments).
    • Quasi-government entity – Quasi-government entities are special purpose bodies established by government or parliament to accomplished a certain purpose.
    • Company (Corporate) – reputable firms often raise capital in the debt market by issuing bonds and short-term securities such as corporate papers.

    Maturity

    • The maturity date is the date when the issuer is obligated to redeem the bond.
    • The tenor, also known as term-to-maturity, is the time remaining until the bond’s maturity date.
    • Money market securities are fixed-income securities with maturity up to one year.
    • Capital market securities are fixed-income securities with maturity longer than one year.

    Par value (principal) of a bond

    • The par value of a bond is the amount the issuer agrees to repay the bondholders on the maturity date.
    • Other names for par value are face value, nominal value, redemption value, and maturity value.
    • Bonds can have any par value.
    • Bond prices are often quoted as a percentage of their par value.

    Coupon rate and frequency

    • The coupon or nominal rate (yield) of a bond is the interest rate that the issuer agrees to pay each year until the maturity date. Spreads are usually expressed in basis points (bps). One basis point is equal to 0.01%.
    • The coupon is the annual amount of interest payments and is determined by multiplying the coupon rate by the par value of the bond.
      • Plain vanilla bonds pay a fixed rate of interest.
      • Floating-rate notes (FRNs) or floaters pay a floating rate: a reference rate plus a spread. (A popular reference rate for FRNs is Libor (London interbank offered rate) and T-bill rate in Kenya).
      • Bonds that do not pay interest are called “zero-coupon bonds.”

    Currency denomination

    • Bonds can be issued in any currency, mostly currency of issuing country.
    • Dual-currency bonds make coupon payments in one currency and pay the par value at maturity in another currency.
    • Currency option bonds are a combination of a single currency bond plus a foreign currency option.
    • Several yield measures are used by market participants. For example, nominal yield (i.e., coupon rate), current (i.e., running) yield, yield to maturity, and others.
    Next 1.2 Types of Fixed Income Securities Next
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