CFA Fixed Income

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For more information on this video, and to sign-up for our 10-day Free CFA Course click here - http://www.edupristine.com/10-day-cfa/cfa-fixed-income/ To know more about these trainings, do contact us at -M: +91 80800 05533

CFA Fixed Income session presents the fundamentals of fixed-income investments, one of the largest segments of global financial markets. The first two readings introduce the basic features and characteristics of fixed-income securities and their associated risks. The third reading describes the primary issuers, sectors, and types of bonds. The final reading of the study session introduces yields and spreads and the effect of monetary policy on financial markets.

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CFA Fixed Income

  1. 1. www.edupristine.com Fixed Income- Bond Pricing Topic Weight: 12%© PristineThis Presentation has been prepared to provide general information about theCompany to whom it is addressed. This Presentation does not purport to contain allthe information. The information provided in this presentation is meant only forthe recipient and is not to be shared with anyone else.
  2. 2. Bond Valuation C1 C2 C3 C  Face Value Value of a Bond     ...... N (1  YTM)1 (1  YTM)2 (1  YTM)3 (1  YTM)N Par Bond Premium Bond Discount Bond Price of the Bond = Face Price of the Bond > Face Price of the Bond < Face Value of the Bond Value of the Bond Value of the Bond Coupon=Yield to Maturity Coupon>Yield to Maturity Coupon<Yield to Maturity (YTM) (YTM) (YTM) Price declines to the Face Price rises to the Face Value Price doesn’t change with Value with the passage of with the passage of time time time $150 $110$140 Par Bond $140 Premium Bond Discount Bond $100$120 $130 $90 $120$100 $80 $110 $80 $70 $100 $60 $90 $60 FY 0 FY 2 FY 4 FY 6 FY 8 FY 10 FY 0 FY 2 FY 4 FY 6 FY 8 FY 10 FY 0 FY 2 FY 4 FY 6 FY 8 FY 10Pristine www.edupristine.com 2
  3. 3. Concept Checker  Consider a 5 year vanilla bond with a face value of $1000 and 10% annually paid coupon. Calculate its price if the interest rates are 9%, 10%, and 11%. A. $ 1038, $1000 and $963 respectively B. $ 1026, $1000 and $983 respectively C. $ 1038, $1000 and $983 respectivelyPristine www.edupristine.com 3
  4. 4. Answer A Time Cash flow PV @11% PV @ 10% PV @ 9% T=1 100 90.09 90.91 91.74 T=2 100 81.16 82.64 84.17 T=3 100 73.12 75.13 77.22 T=4 100 65.87 68.30 70.84 T=5 1100 652.80 683.01 714.92 Total $963.04 $1,000 $ 1,038.90 Bond trading at a Bond trading at Bond trading at a Discount Par PremiumPristine www.edupristine.com 4

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