Exam Weight: ~4 questions (3% of exam)
Prerequisite: Fixed Income Securities (bond types, issuers)
This unit builds on your knowledge of bond types by teaching you how to analyze them. You will learn bond characteristics (tax treatment, liquidity, call features, coupon vs. zero coupon, duration, pricing, risk) and the valuation factors used to compare and evaluate fixed income investments (yields, ratings, credit spread, conversion valuation, discounted cash flow).
What You'll Learn
- Fixed income characteristics: tax implications, liquidity, liquidation preference, call features, coupon vs. zero coupon, duration, and pricing
- Fixed income valuation factors: duration, maturity, yield to call (YTC), yield to maturity (YTM), yield hierarchy, conversion valuation, bond ratings, credit spread, and discounted cash flow (DCF)
- Synthesis: Putting fixed income characteristics together
The Big Picture
Think of it this way: The previous unit taught you to identify "what type of bond is this?" (Treasury, corporate, muni, etc.). This unit teaches you "how do I evaluate it?" (pricing, yields, risk, special features). On the exam, you will need both skills together.
| Previous Unit Covered | This Unit Covers |
|---|---|
| What bonds are (types, issuers) | How bonds behave (pricing, yields, risk) |
| Treasury, Agency, Corporate, Muni, Foreign | Premium, par, discount relationships |
| Bond issuers and purposes | Bond ratings, credit spreads, duration |
| Tax treatment by issuer type | Yield calculations (current yield (CY), YTM, YTC) |