Fixed Income

Question 1

SOFR

Answer 1

Secured Overnight Funding Rate (US)
Example of MRR (market reference rate)

Question 2

Discount window lending

Answer 2

Last resort lending from central bank. Higher rate than CB funds rate, and likely to inducing scrutiny and restrictions on borrower

Question 3

Repo rate

Answer 3

ANNUALISED interest rate implied but difference in purchase and repurchase price. 360 day convention

Question 4

Yield to maturity

Answer 4

The discount rate that makes the present values of future cash flows equal to its price

Question 5

Bond equivalent yield (for money market securities)

Answer 5

Add on yield annualised based on 365 day year

Question 6

QM in FRN

Answer 6

Quoted margin - fixed margin above MMR actually paid on coupon

Question 7

DM in FRN

Answer 7

Discount margin - margin required to price FRN

Question 8

Money market securities

Answer 8

DEBT securities with a yield < 1yr

Question 9

A bond’s simple yield

Answer 9

Takes into account premium or discount by assuming it decking’s linearly till maturity

Question 10

Carrying value

Answer 10

Price along constant yield price trajectory.
Represents amortising value of premium/ discount towards par as bond reaches maturity at rate that matches YTM as long as it is unchanged.

Question 11

Modified duration

Answer 11

Macauley duration/(1+periodic rate of return)

Periodic rate of return = YTM/ periodicity

Question 12

Modified duration

Answer 12

% change in bonds price given 1% change in YTM. (-ModDurxdeltaYTM)