Fixed Income Analysis

Bond pricing and yield measures | Spot, par and forward yield curves | Interest rate risk and return

What you'll learn
Describe the main characteristics of a fixed-income security
Describe the main characteristics of fixed-income markets
Calculate and evaluate a bond's price by using discounted cash flow analysis using Excel
Define, explain and calculate a bond's yield-to-maturity
Understand the relationship between a bond's price and its yield-to-maturity
Define and interpret yield spread measures for fixed rate bonds as well as for floating rate bonds
Understand and describe the relationship among coupon, yield-to-maturity, maturity and convexity and a bond's price
Interpret and understand the sources of return from a fixed rate bond
Describe and compare reinvestment and price risk for a bond
Understand Macaulay duration and contrast it with modified duration
Interpret and describe convexity as a bond price/yield feature
Calculate a bond's modified duration and its convexity using Excel
Calculate the percentage price change of a bond given its modified duration and convexity using Excel
Determine if a bond is a premium or discount bond

Requirements
Basic knowledge of concepts regarding the "time value of money" (TVM).
Some prerequisites for basic financial math and Excel calculations for expressing the value of money as a function of time (TVM), like present (PV) and future value (FV) computations using interest compounding, and a basic knowledge on how to enter formulas in Excel.
Some basic knowledge of finance regarding corporate and government bonds.

Description
The course aims at covering the foundational elements of fixed rate bonds, particularly regarding the interpretation of the return and risk trade-offs with reference to yield-to-maturity and duration. The first lessons give on overview of the fixed income markets, the kind of securities that are traded, the type of issuers that rely on the bond markets to fund their operations. The type of different cash flows that a bond can feature (i.e. bullet bonds, zero-coupon bonds, floating rate bonds).After a brief introduction about fixed-income securities and their markets, the bulk of the course revolves around (1) fixed-income valuation covering the application of discounted cash flow analysis in bond pricing, the interpretation and calculation of yield-to-maturity, the different quote conventions and meanings of ‘flat’ and ‘full’ prices, the effects of maturity, coupon, yield and convexity on bond prices (or yields), (2) yield and yield spread measures regarding the computation of effective annual rates for adjusting for different periodicities, the different measures of yields for bonds with embedded options, G-spread, I-spread and Z-spread and spreads for floating rate bonds, (3) spot, par and forward rates, the yield curve, pricing with spot rates, par and forward rates and the spot, par and forward curves, (4) interest rate risk and return, a bond’s sources of return, the holding period and interest rate risk, Macaulay duration, modified duration, money duration and the price value of a basis point, bond convexity and the approximate change using both duration and convexity.

Undergraduate and graduate finance students,CFA, or other professional certification, candidates who want a foundational support for fixed-income analysis,Anyone interested in understanding better fundamental bond analysis,Financial advisers who want to deepen their understanding of fixed income analysis,Aspiring financial analysts who want to gain a basic, yet sound, foundation in bond analysis