For more information on this video, and to sign-up for our 10-day Free CFA Course click here - http://www.edupristine.com/10-day-cfa/cfa-fixed-income/ To know more about these trainings, do contact us at -M: +91 80800 05533 CFA Fixed Income session presents the fundamentals of fixed-income investments, one of the largest segments of global financial markets. The first two readings introduce the basic features and characteristics of fixed-income securities and their associated risks. The third reading describes the primary issuers, sectors, and types of bonds. The final reading of the study session introduces yields and spreads and the effect of monetary policy on financial markets.

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Fixed Income- Bond
Pricing
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2. Bond Valuation
C1 C2 C3 C  Face Value
Value of a Bond     ...... N
(1  YTM)1 (1  YTM)2 (1  YTM)3 (1  YTM)N
Par Bond Premium Bond Discount Bond
Price of the Bond = Face Price of the Bond > Face Price of the Bond < Face
Value of the Bond Value of the Bond Value of the Bond
Coupon=Yield to Maturity Coupon>Yield to Maturity Coupon<Yield to Maturity
(YTM) (YTM) (YTM)
Price declines to the Face Price rises to the Face Value
Price doesn’t change with
Value with the passage of with the passage of time
time
time
$150 $110
$140 Par Bond $140
Premium Bond Discount Bond
$100
$120 $130
$90
$120
$100
$80
$110
$80 $70
$100
$60 $90 $60
FY 0 FY 2 FY 4 FY 6 FY 8 FY 10 FY 0 FY 2 FY 4 FY 6 FY 8 FY 10 FY 0 FY 2 FY 4 FY 6 FY 8 FY 10
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3. Concept Checker
 Consider a 5 year vanilla bond with a face value of $1000 and 10% annually paid
coupon. Calculate its price if the interest rates are 9%, 10%, and 11%.
A. $ 1038, $1000 and $963 respectively
B. $ 1026, $1000 and $983 respectively
C. $ 1038, $1000 and $983 respectively
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4. Answer
A
Time Cash flow PV @11% PV @ 10% PV @ 9%
T=1 100 90.09 90.91 91.74
T=2 100 81.16 82.64 84.17
T=3 100 73.12 75.13 77.22
T=4 100 65.87 68.30 70.84
T=5 1100 652.80 683.01 714.92
Total $963.04 $1,000 $ 1,038.90
Bond trading at a Bond trading at Bond trading at a
Discount Par Premium
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