CFA: Fixed income
Explanations, applications and practice for fixed income.
- Concepts
Macaulay duration: the present-value-weighted payment time
Understand duration as a weighted average of cash-flow arrival times.
- Formulas
Modified duration formula and yield convention
Relate Macaulay duration to local yield-based price sensitivity.
- Lessons
Bond prices and yields: understanding the inverse relationship
Learn why a fixed-rate bond’s price changes when the market yield changes.
- Common mistakes
Basis points, percentage points and decimal yield changes
Avoid a hundredfold error when entering yield changes in formulas.
- Practice
Bond-price and duration practice
Check cash-flow signs, price–yield direction and yield-change units.
- Tools
Bond price calculator
Price a regular fixed-rate bond and inspect its cash-flow sensitivity.
- Tools
Duration and convexity calculator
Compare duration estimates with the exact repricing of a regular bond.
- Worked examples
Pricing a three-year annual-coupon bond payment by payment
Work through every discounted coupon and principal payment.
- Worked examples
Estimating a price change with duration and convexity
Follow the signs, decimal yield change and squared curvature term.