Fixed Income

CFA Level I — Exam Weight: 11-14%

Modules

Concepts

Formulas

Quiz Questions

Modules in Fixed Income

5 learning modules covering 11-14% of the CFA Level I exam.

Key Formulas

10 essential formulas for Fixed Income.

Bond Price

P = Σ[C/(1+r)ᵗ] + FV/(1+r)ⁿ

PV of coupons + PV of par

Current Yield

CY = Annual Coupon / Price

Income return only

YTM

Rate that equates PV of all CFs to price

Total return if held to maturity

Macaulay Duration

MacD = Σ[t × PV(CFₜ)] / Price

Weighted average time to receive CFs

Modified Duration

ModD = MacD / (1 + YTM/m)

Price sensitivity to yield change

Price Change (Duration)

ΔP/P ≈ -ModD × Δy

First-order approximation

Price Change (with Convexity)

ΔP/P ≈ -ModD × Δy + ½ × Convexity × (Δy)²

More accurate for large yield changes

Effective Duration

EffD = (P₋ - P₊) / (2 × P₀ × Δy)

For bonds with embedded options

Credit Spread

Spread = YTM_corporate - YTM_benchmark

Compensation for credit risk

Expected Loss

EL = PD × LGD × EAD

PD=prob default, LGD=loss given default

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