50. Fixed-Income Securities: Defining Elements
The candidate should be able to:
a. describe basic features of a fixed-income security. (page 1)
b. describe content of a bond indenture. (page 3)
c. compare affirmative and negative covenants and identify examples of each.
(page 3)
d. describe how legal, regulatory, and tax considerations affect the issuance
and trading of fixed-income securities. (page 4)
e. describe how cash flows of fixed-income securities are structured. (page 7)
f. describe contingency provisions affecting the timing and/or nature of cash
flows of fixed-income securities and identify whether such provisions
benefit the borrower or the lender. (page 11)
The topical coverage corresponds with the following CFA Institute assigned
reading:
51. Fixed-Income Markets: Issuance, Trading, and Funding
The candidate should be able to:
a. describe classifications of global fixed-income markets. (page 19)
b. describe the use of interbank offered rates as reference rates in floating-
rate debt. (page 20)
c. describe mechanisms available for issuing bonds in primary markets. (page
21)
d. describe secondary markets for bonds. (page 22)
e. describe securities issued by sovereign governments. (page 22)
f. describe securities issued by non-sovereign governments, quasi-government
entities, and supranational agencies. (page 23)
g. describe types of debt issued by corporations. (page 23)
h. describe structured financial instruments. (page 25)
i. describe short-term funding alternatives available to banks. (page 27)
j. describe repurchase agreements (repos) and the risks associated with them.
(page 28)
The topical coverage corresponds with the following CFA Institute assigned
reading:
52. Introduction to Fixed-Income Valuation
The candidate should be able to:
a. calculate a bond’s price given a market discount rate. (page 36)
b. identify the relationships among a bond’s price, coupon rate, maturity, and
market discount rate (yield-to-maturity). (page 38)
c. define spot rates and calculate the price of a bond using spot rates. (page
40)
d. describe and calculate the flat price, accrued interest, and the full price of a
bond. (page 41)
e. describe matrix pricing. (page 43)
f. calculate and interpret yield measures for fixed-rate bonds, floating-rate
notes, and money market instruments. (page 45)
g. define and compare the spot curve, yield curve on coupon bonds, par curve,
and forward curve. (page 52)
h. define forward rates and calculate spot rates from forward rates, forward
rates from spot rates, and the price of a bond using forward rates. (page
54)
i. compare, calculate, and interpret yield spread measures. (page 58)
The topical coverage corresponds with the following CFA Institute assigned
reading:
53. Introduction to Asset-Backed Securities
The candidate should be able to:
a. explain benefits of securitization for economies and financial markets. (page
74)
b. describe securitization, including the parties involved in the process and the
roles they play. (page 75)
c. describe typical structures of securitizations, including credit tranching and
time tranching. (page 77)
d. describe types and characteristics of residential mortgage loans that are
typically securitized. (page 78)
e. describe types and characteristics of residential mortgage-backed securities,
including mortgage pass-through securities and collateralized mortgage
obligations, and explain the cash flows and risks for each type. (page 80)
f. define prepayment risk and describe the prepayment risk of mortgagebacked
securities.
(page
80)
g. describe characteristics and risks of commercial mortgage-backed securities.
(page 87)
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