Chapter 6: Bond Pricing and Valuation Basics

In this section

• Present Value Concepts and Calculation Methods
  Present Value Concepts and Calculation Methods (CFA Level 1): Time Value of Money in Bond Valuation, Key Present Value Building Blocks, and Different Compounding Conventions. Key definitions, formulas, and exam tips.
• Yield-to-Maturity and Other Yield Measures
  Yield-to-Maturity and Other Yield Measures (CFA Level 1): Yield-to-Maturity: The Backbone of Bond Valuation, Formula and Cash Flow Representation, and Assumptions and Usage. Key definitions, formulas, and exam tips.
• Accrued Interest, Full Price, and Clean Price
  Accrued Interest, Full Price, and Clean Price (CFA Level 1): Clean Price vs. Full Price (Dirty Price), Accrued Interest and Day-Count Conventions, and General Formula for Accrued Interest. Key definitions, formulas, and exam tips.
• Matrix Pricing and Comparable Bond Analysis
  Matrix Pricing and Comparable Bond Analysis (CFA Level 1): Key Reasons to Use Matrix Pricing, Comparable Bond Analysis, and Selecting Comparable Bonds. Key definitions, formulas, and exam tips.
• Floating-Rate Instruments and Money Market Yields
  Floating-Rate Instruments and Money Market Yields (CFA Level 1): Setting the Stage: The Nature of Floating-Rate Instruments, Key Features of FRNs, and LIBOR to SOFR Transition. Key definitions, formulas, and exam tips.
• Valuation of Bonds with Irregular Coupon Periods
  Valuation of Bonds with Irregular Coupon Periods (CFA Level 1): Understanding Irregular Coupon Periods, Key Reasons for Irregular Coupons, and Day Count Conventions and Accrued Interest. Key definitions, formulas, and exam tips.
• Bond Valuation Using Yield Curve Models
  Bond Valuation Using Yield Curve Models (CFA Level 1): Why Use Spot and Forward Rates Instead of, Bootstrapping and Constructing Spot Rate Curves, and Forward Rates and Their Role. Key definitions, formulas, and exam tips.
• Calculating Yields for Index-Amortizing Bonds
  Calculating Yields for Index-Amortizing Bonds (CFA Level 1): Key Concepts of Index-Amortizing Bonds, Payment Mechanics and Scenario Analysis, and Visual Representation of IAB Cash Flows. Key definitions, formulas, and exam tips.
• Sensitivity Analysis for Bond Cash Flows
  Sensitivity Analysis for Bond Cash Flows (CFA Level 1): Understanding Sensitivity Analysis, Scenario Analysis vs. Stress Testing, and Measuring Price Sensitivity. Key definitions, formulas, and exam tips.
• Sinking Fund Provisions: Pricing and Credit Considerations
  Sinking Fund Provisions: Pricing and Credit Considerations (CFA Level 1): Understanding Sinking Fund Provisions, Sinking Fund Structures and Types, and How Sinking Funds Affect Default Risk. Key definitions, formulas, and exam tips.
• Bond Valuation in a Multi-Curve Environment
  Bond Valuation in a Multi-Curve Environment (CFA Level 1): Foundations of Multi-Curve Pricing, Why More than One Curve?, and OIS Discounting vs. Traditional LIBOR Curves. Key definitions, formulas, and exam tips.
• Weighted Average Life (WAL) Calculations
  Weighted Average Life (WAL) Calculations (CFA Level 1): Why Weighted Average Life Matters, Concept Behind WAL, and WAL vs. Maturity. Key definitions, formulas, and exam tips.
• Bond Accounting under IFRS vs. US GAAP: Premium and Discount Amortization
  Bond Accounting under IFRS vs. US GAAP: Premium and Discount Amortization (CFA Level 1): Effective Interest Rate Method, IFRS vs. US GAAP Classifications, and IFRS Classification. Key definitions, formulas, and exam tips.
• Monte Carlo Simulation in Bond Pricing
  Monte Carlo Simulation in Bond Pricing (CFA Level 1): Why Use Monte Carlo for Bond Pricing?, Foundations of Monte Carlo Simulation, and Step-by-Step Monte Carlo Approach for Bond Pricing. Key definitions, formulas, and exam tips.
• Cross-Currency Swaps and Implications for Bond Valuation
  Cross-Currency Swaps and Implications for Bond Valuation (CFA Level 1): Basic Mechanics of Cross-Currency Swaps, Role in Hedging Foreign Exchange Risk, and Impact on Bond Valuation. Key definitions, formulas, and exam tips.
• Day Count Conventions and Their Effects on Accrued Interest
  Day Count Conventions and Their Effects on Accrued Interest (CFA Level 1): Core Concepts of Day Count Conventions, 30/360 (Bond Basis), and Actual/365 (Fixed). Key definitions, formulas, and exam tips.