Study Session 15: Fixed Income: Basic Concepts
Fixed Income Securities: Defining Elements
(1) If the credit worthiness of the issuer of a 4-year Floating-Rate Note changes drastically in the 2nd year, should not the spread component of the FRN coupon rate (which is fixed at issuance) also be increased along with the yield on the note at that point in time?
Which of the following is most likely an advantage of collateralized mortgage obligations (CMOs)? CMOs can
eliminate prepayment risk.
be created directly from a pool of mortgage loans.
meet the asset/liability requirements of institutional investors.
C is correct.
If these questions sound naïve to you, please excuse me.
In the real world,
1. If the bond spot and the bond forward rates are declining, is it good or is it bad?
2. If bond prices are increasing, what is the significance of such a situation?
3. If bond prices are decreasing, what is the significance of such a situation?
Hi, everyone! I am really confused about yields. Could not found appropriate answer.
1) Taking into consideration that BEY = 2* Semiannual effective yield, why then BEY DOES NOT EQUAL to 4 * quarterly effective yield?
2) Is YTM our “stated rate”? So to compute Effective annual return (EAR) we use this YTM.
EAR = [ (1 + stated annual yield / m)m ] - 1 where m - number of compounding periods THEN we can compute
LIBOR is mentioned throughout the CFA curriculum - I am just trying to understand the real world application. I wonder if someone would kindly shed some light on this?
Having seen the euro LIBOR rates from overnight to 12 months - they are all negative, i.e. -0.21514 %. I don’t understand why they are negative and if these negative rates are used in investments?
The 1 month treasuries are currently quoted with a yield of 2.2%. Could someone explain this number to me again.
1) Does this mean that if I buy a 1 month yield in January and hold that to maturity, that is until Feb 1st, do I make 2.2%?
2) Or does this mean, in order to make 2.2% I need to buy another 1 month Treasury in Feb, and another in March and so on and on until Dec 31st, in order to make 2.2% by the end of the year?
So is the quoted yield annualized is what I am asking I guess.
Anyone can explain to me why does lower coupon rate lead to higher duration ? Thank you.
I want to ask about the reality of the re-investment assumption. The 10 Year Treasury is currently at 3.09%, however, you assume you earn that yield if you reinvest the coupons at a 3.09% rate. I just want to ask, in reality, do you find such a rate to reinvest those coupons and where do you usually re-invest them? Or is my reasoning with respect to fixed income incorrect?
As in investor’s perspective, what are the adv and disadv of this make whole call provision?
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.