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Study Session 16: Fixed Income: Analysis of Risk

Cash flow yield

Hi all, I was wondering if anyone could help me - on the topic of bond portfolio duration there is discussion of cashflow yield using a portfolio of 2 zero coupon bonds, 1 year and 30 year. The cash flow yield is the IRR of the two maturity cash flows however I can’t figure out how to calculate that using my BA II Plus as the IRR function only works of a max of n = 25 whereas I think I need n = 30 for the 30 year bond. I feel like I am overlooking something obvious here as PVs and yields are given, I am currently bouncing my head off the wall as I can’t figure it out!

What's the logic here?

In Practice Problems No.20 on Reading 56: Fundamentals of Credit Analysis:

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Why because default risk is quite low,  so we need to focus more on default risk?


Full Price in Money Duration and Price Value of a basis point


I keep making mistakes with money duration and price value of a basis point. I believe it is due to the use of full price in the definitions that is throwing me off. I have questions at the bottom of this post. 

Example (money duration):

Calculate the money duration on a coupon date of a $2MM par value bond that has a modified duration of 7.42 and a full price of 101.32, expressed for the whole bond and per $100 of face value. 

Bond Duration Assumption

Hi All,

Not sure if this is required for the exam, I am just wondering why do we need to assume parallel shifts in the yield curve for duration to work? Is this due to duration being a linear estimate??


Spot rates from Forward Rates Question

Can someone please help explain this question?

six-month forward rates (presented on an annualized, bond-equivalent basis) were calculated from the yield curve.

1f0 0.50% 1f1 0.70% 1f2 1.00% 1f3 1.50% 1f4 2.20% 1f5 3.00% 1f6 4.00%

Calculate the 3-year spot rate:

A. 0.74%. B. 1.48%. C. 2.06%.

Answer = B

Market liquidity risk and debt outstanding


I have already repeated fixed-income chapter twice and I still cannot understand one, I guess, basic thing.

Why do market liquidity risk is higher when there is less debt outstanding (publicly traded)?

Number of periods to maturity

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Shouldn’t the number of periods be (2041-2014+1)*2 = 28*2 = 56? (I did this because I thought that coupons will be paid in 2014 through 2041 including both the years) The official answer uses 54.

Can someone please clarify why this is the case?  I’d appreciate any thoughts.

Discount period struggles

I can’t get my mind right about a discount periods


1) when it’s written bla bla bla is maturing in 20 years => 19 years discount period is used

2) when it’s about let’s say 10 year liability and u r asked to calculate PV after 1 year => 8 year discount period is used

3) If sth is going to be paid in 4 years => 3 years discount period is used…

So… When do I use years to maturity-1, or -2 or just years to maturity?

Thanks in advance!