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Cfa > Fixed inc > Flashcards

Fixed inc Flashcards

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CFA flashcards
1
Q

PVfull

A

PVfull = PVflat + Accrued Interest

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2
Q

Periodicity

A

(1+APRm/m)^m = (1+APRn/n)^n

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3
Q

Discount basis

A

Pv=Fv(1-t/T DR)

Disc rate = t/T[(fv-pv)/fv]

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4
Q

Add on basis

A

Pv = fv/ (1+t/T AOR)

AOR = T/t[(fv-pv)/pv)]

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5
Q

Forward curve

A

2y1y
When what
2 year bond for 1 year

(1+r1)(1+implied forw rate)=(1+r2)^2

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6
Q

Types of yield

A

True yield - weekends not included
Current yield - annual PMt/PVflat
Simple yield - (ann pmt+st amort of gain/loss)/PVflat
Float Rate Note - coupon tied to libor

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7
Q

Libor

A

Libor + Quoted Margin (QM) - issuer (spread) + discount margin(DM) - market

pV = [(Libor + Qm) x Fv)/2]/m/[1+ ((Libor+DM)/m)]^n

I/y = libor + dm / n

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8
Q

Properties of a bond

A

Longer bond - more volatile

Lower pmt - more volatile

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9
Q

Macalay Duration

A

Ęweighted CF/ PVfull

Shows how long we have to keep bond so extra valuation offset the loss of reinvestmnt

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10
Q

Modified Duration
And
Approx Mod Dur

A

Annualized Macalay Dur/ (1+r)

Approx mod dur = pv- - pv+ / 2xchange in yield x PVo

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11
Q

Effective Duration

A

Pv- - Pv+ / 2xchange in curve xPVo

Curve is sensitive to benchmark yield (govt, spot, par)

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12
Q

Key rate Duration

A

Pv- - Pv+ / 2x change in rate xPVo

Duration at specific maturity of the yield curve to get %change in portfolio value

ĘKey Rate Dur = Eff Dur

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13
Q

Properties of Duration

A

Longer Time to Maturity leads to longer Duration
Lower coupon leads to longer Duration
Lower Yield to Maturity longer Duration

But its all subject to interest rate risk

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14
Q

Money Duration

A

Annual Modified Duration x PVfull

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15
Q

PVfull

A

PVfull= -money Duration x change in Yield

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16
Q

If 2 bonds all equal but one has lower coupon, which one is more price volatile?

If 2 bonds all equal but one has longer time to Maturity , which one is more price volatile?

A

Pmt lower more volatile

Ttm longer more volatile

17
Q

PV per Basis Point

A

Pv- -PV+ /2

18
Q

Convexity adjustment

Annual convexity

A

Pv- + Pv+ - 2PV / PVo (yield)^2

19
Q

%change in PV full

A

(-annual Mod Dur x change in yield) + (1/2 money convexity x (yield)^2)

20
Q

Change in PV full

A

(-Money Duration x change in yield) + (1/2 money convexity x (yield)^2)

21
Q

Single Month Maturity Rate

A

Smm = monthly prepmt/beg amount - pmts

22
Q

Prepmt amount

A

Smm x (end balance - pmts)

23
Q

CPR

A

1- (1-smm)^12

24
Q

What happens with ABS if int rates decr?

What if rates incr?

A

Refinance incr, prepmt incr, Psa incr, av life decr. Contraction risk

Refinance decr, prepmt decr, psa decr, av life incr. extension risk

25
Q

Fully amort bond

A

Pmi + interest

26
Q

Partially amort bond

A

Int + pmt + baloon pmt at Maturity

27
Q

Callable bonds

A

Called at = pv of (int+fv)/govt ytm + spread

If interest rate drops company calls the bond

28
Q

Convertable bonds

A

Conversion Ratio = Fv/ convert prixe
Conversion Val = Stock price x conv ratio
Conversion premium = BOnd Price - (stock price x conv ratio)
Conversion parity = B = (StP x ratio)

29
Q

Warrants

A

Are not an embedded option

30
Q

Credit enhancement

A

Internal - subordination (issue 85% senior, 15% junior)

  • over collateralization ( put more collateral than tot FV of the bonds)
  • excess spread

External - surety bond(issued by insurance comp)/ guarantee(issued by a bank)
- letter of credit

31
Q

Time tranche

A

Each receives interest but principal goes a1 then a2 and so on

Redistributes prepmt risk

32
Q

Collateriz Mortgage oblig

A

CMO only can do a time tranch
To protect from estension risked

Has non agency credit risk
To avoid it can do internal credit enhancement:
Credit tranch, build a reserve fund, overcollaterize
Or do external credit enhancement - get a guarantee

33
Q

Rmbs

A

Loan to value ratio = mortgage/ property value

Credit quality of a mortgage holder is important

34
Q

Planned Anort Class (pac)

A

Offers contract and extension risk

But support tranche gets all the risk

35
Q

Cmbs prepmt risk

A

Non-recourse loan!!
Almost avoided by prep lockout
Prepmt penalty points
Yield maint charge

Cfa (24 decks)

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