fbpixel 101 concepts level I | IFT World - Part 9
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LM01 Alternative Investment Features, Methods, and Structures
LM01 Categories, Characteristics, and Compensation Structures of Alternative Investments
LM01 Corporate Structures and Ownership
LM01 Derivative Instrument and Derivative Market Features
LM01 Derivative Instrument and Derivative Market Features
LM01 Ethics and Trust in the Investment Profession
LM01 Ethics and Trust in the Investment Profession
LM01 Fixed-Income Instrument Features
LM01 Fixed-Income Securities: Defining Elements
LM01 Introduction to Financial Statement Analysis
LM01 Introduction to Financial Statement Analysis
LM01 Market Organization & Structure
LM01 Market Organization and Structure
LM01 Organizational Forms, Corporate Issuer Features, and Ownership
LM01 Portfolio Management Overview
LM01 Portfolio Management: An Overview
LM01 Rates and Returns
LM01 The Firm & Market Structures
LM01 Time Value of Money
LM01 Topics in Demand and Supply Analysis
LM02 Alternative Investment Performance and Returns
LM02 Analyzing Income Statements
LM02 Code of Ethics and Standards of Professional Conduct
LM02 Code of Ethics and Standards of Professional Conduct Profession
LM02 Financial Reporting Standards
LM02 Fixed Income Markets - Issuance Trading and Funding
LM02 Fixed-Income Cash Flows and Types
LM02 Forward Commitment and Contingent Claim Features and Instruments
LM02 Forward Commitment and Contingent Claim Features and Instruments
LM02 Introduction to Corporate Governance and Other ESG Considerations
LM02 Investors and Other Stakeholders
LM02 Organizing, Visualizing, and Describing Data
LM02 Performance Calculation and Appraisal of Alternative Investments
LM02 Portfolio Risk & Return: Part I
LM02 Portfolio Risk and Return Part I
LM02 Security Market Indexes
LM02 Security Market Indexes
LM02 The Firm and Market Structures
LM02 Time Value of Money in Finance
LM02 Understanding Business Cycles
LM03 Aggregate Output, Prices and Economic Growth
LM03 Analyzing Balance Sheets
LM03 Business Models & Risks
LM03 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses
LM03 Fiscal Policy
LM03 Fixed-Income Issuance and Trading
LM03 Guidance for Standards I-VII
LM03 Guidance for Standards I–VII
LM03 Introduction to Fixed Income Valuation
LM03 Investments in Private Capital: Equity and Debt
LM03 Market Efficiency
LM03 Market Efficiency
LM03 Portfolio Risk & Return: Part II
LM03 Portfolio Risk and Return Part II
LM03 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds
LM03 Probability Concepts
LM03 Statistical Measures of Asset Returns
LM03 Understanding Income Statements
LM04 An Introduction to Asset-Backed Securities
LM04 Analyzing Statements of Cash Flows I
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
LM04 Basics of Portfolio Planning & Construction
LM04 Basics of Portfolio Planning and Construction
LM04 Capital Investments
LM04 Common Probability Distributions
LM04 Fixed-Income Markets for Corporate Issuers
LM04 Introduction to the Global Investment Performance Standards (GIPS)
LM04 Introduction to the Global Investment Performance Standards (GIPS)
LM04 Monetary Policy
LM04 Overview of Equity Securities
LM04 Overview of Equity Securities
LM04 Probability Trees and Conditional Expectations
LM04 Real Estate and Infrastructure
LM04 Understanding Balance Sheets
LM04 Understanding Business Cycles
LM04 Working Capital and Liquidity.
LM05 Analyzing Statements of Cash Flows II
LM05 Capital Investments and Capital Allocation
LM05 Company Analysis: Past and Present
LM05 Fixed-Income Markets for Government Issuers
LM05 Introduction to Geopolitics
LM05 Introduction to Industry and Company Analysis
LM05 Monetary and Fiscal Policy
LM05 Natural Resources
LM05 Portfolio Mathematics
LM05 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
LM05 Pricing and Valuation of Forward Contracts.
LM05 Sampling and Estimation
LM05 The Behavioral Biases of Individuals
LM05 The Behavioral Biases of Individuals
LM05 Understanding Cash Flow Statements
LM05 Understanding Fixed-Income Risk and Return
LM05 Working Capital & Liquidity
LM06 Analysis of Inventories
LM06 Capital Structure
LM06 Cost of Capital-Foundational Topics
LM06 Equity Valuation: Concepts and Basic Tools
LM06 Financial Analysis Techniques
LM06 Fixed-Income Bond Valuation: Prices and Yields
LM06 Fundamentals of Credit Analysis
LM06 Hedge Funds
LM06 Hypothesis Testing
LM06 Industry and Competitive Analysis
LM06 International Trade
LM06 Introduction to Geopolitics
LM06 Introduction to Risk Management
LM06 Introduction to Risk Management
LM06 Pricing and Valuation of Futures Contracts
LM06 Pricing and Valuation of Futures Contracts
LM06 Simulation Methods
LM07 Analysis of Long-Term Assets
LM07 Business Models
LM07 Capital Flows and the FX Market
LM07 Capital Structure
LM07 Company Analysis: Forecasting
LM07 Estimation and Inference
LM07 International Trade and Capital Flows
LM07 Introduction to Digital Assets
LM07 Introduction to Linear Regression
LM07 Inventories
LM07 Pricing and Valuation of Interest Rate and Other Swaps
LM07 Pricing and Valuation of Interest Rates and Other Swaps
LM07 Technical Analysis
LM07 Yield and Yield Spread Measures for Fixed-Rate Bonds.
LM08 Currency Exchange Rates
LM08 Equity Valuation: Concepts and Basic Tools
LM08 Exchange Rate Calculations
LM08 Fintech in Investment Management
LM08 Hypothesis Testing
LM08 Long Lived Assets
LM08 Measures of Leverage
LM08 Pricing and Valuation of Options
LM08 Pricing and Valuation of Options
LM08 Topics in Long-Term Liabilities and Equity
LM08 Yield and Yield Spread Measures for Floating-Rate Instruments
LM09 Analysis of Income Taxes
LM09 Income Taxes
LM09 Option Replication Using Put-Call Parity
LM09 Option Replication Using Put–Call Parity
LM09 Parametric and Non-Parametric Tests of Independence
LM09 The Term Structure of Interest Rates: Spot, Par, and Forward Curves
LM10 Financial Reporting Quality
LM10 Interest Rate Risk and Return
LM10 Non-current (Long-Term) Liabilities
LM10 Simple Linear Regression
LM10 Valuing a Derivative Using a One-Period Binomial Model
LM10 Valuing a Derivative Using a One-Period Binomial Model
LM11 Financial Analysis Techniques
LM11 Financial Reporting Quality
LM11 Introduction to Big Data Techniques
LM11 Yield-Based Bond Duration Measures and Properties
LM12 Applications of Financial Statement Analysis
LM12 Introduction to Financial Statement Modeling
LM12 Yield-Based Bond Convexity and Portfolio Properties
LM13 Curve-Based and Empirical Fixed-Income Risk Measures
LM14 Credit Risk
LM15 Credit Analysis for Government Issuers
LM16 Credit Analysis for Corporate Issuers
LM17 Fixed-Income Securitization
LM18 Asset-Backed Security (ABS) Instrument and Market Features
LM19 Mortgage-Backed Security (MBS) Instrument and Market Features
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Category: 101 Concepts for Level I

Concept 80: Mechanisms Available for Issuing Bonds in Primary Markets

Primary markets are markets in which bonds are sold for the first time by an issuer to raise capital. Bonds may be issued in the primary market through a public offering or a private placement. Public offering: Any member of the public may buy the bonds. Four types are: Underwritten offerings: The investment bank buys the entire issue and takes the risk of reselling it to investors or dealers. Best effort offerings: The investment bank serves only as a broker and sells the bond issue only if it is able to do so. (Underwritten and best effort offerings are frequently… Read More

101 concepts level I

Concept 81: Repurchase Agreements (Repos)

A repurchase agreement is similar to a collateralized loan. This involves the sale of a security (collateral) with a simultaneous agreement by the seller (borrower) to buy the same security back from the purchaser (lender) at an agreed-on price in the future. The repo rate is the implicit interest rate of a repurchase agreement. The repo margin (haircut) is the difference between the amount borrowed and the value of the collateral. Repurchase agreements are a common source of funding for bond dealers. Instead of borrowing funds if a bond dealer is lending funds, then this agreement is known as a… Read More

101 concepts level I

Concept 82: Relationships among a Bond’s Price, Coupon Rate, Maturity, and Market Discount Rate (Yield-to-Maturity)

The yield-to-maturity is the implied market discount rate given the price of the bond. Relationship with bond’s price A bond’s price moves inversely with its YTM. An increase in YTM decreases the price and a decrease in YTM increases the price of a bond. The relationship between a bond’s price and its YTM is convex. Percentage price change is more when discount rate goes down than when it goes up by the same amount. Relationship with coupon rate A bond is priced at a premium above par value when the coupon rate is greater than the market discount rate. A… Read More

101 concepts level I

Concept 83: Credit Tranching and Time Tranching

ABS are often created with different types of tranches. The aim is to redistribute prepayment risk and credit risk efficiently among the different tranches. Credit tranching The focus is on redistribution of credit risk – Losses resulting from default of the borrowers whose loans are in the collateral. Any credit losses are first absorbed by the tranche with the lowest priority and after that by any other subordinated tranches, in order. Time tranching The focus is on redistribution of prepayment risk – uncertainty that the actual cash flows will be different from the scheduled cash flows as set forth in… Read More

101 concepts level I

Concept 84: Sources of Return From Investing in a Fixed-Rate Bond

For a fixed rate bond purchased at par, there are three sources of return: Receipt of the promised coupon and principal payments. Reinvestment of coupon payments. Potential capital gains (or losses) on the sale of the bond prior to maturity. If a bond is purchased at a discount or premium, the rate of return also includes the effect of the price being “pulled to par” as we approach maturity. Total return of a bond = reinvested coupon interest payments + sale/redemption of principal at maturity. Changes in interest rate affect the realized rate of return for any bond investor in… Read More

101 concepts level I

Concept 85: Macaulay, Modified, and Effective Ddurations

Bond duration measures the sensitivity of the bond’s price to changes in interest rates. The three common measures of duration are: Macaulay duration: The weighted average of the time to receipt of coupon interest and principal payments. Modified duration: A linear estimate of the percentage price change in a bond for a 100 basis points change in its yield-to-maturity.           A 12% annual-pay bond has 10 years to maturity. The bond is currently trading at par. Assuming a 10 basis-points change in yield-to-maturity, calculate the bond’s approximate modified duration. Solution: The bond is priced at par… Read More

101 concepts level I

Concept 86: Four Cs (Capacity, Collateral, Covenants, and Character) of Traditional Credit Analysis

The components of traditional credit analysis are known as the 4 Cs: Capacity: The ability of the borrower to make interest and principal payments on time. Capacity to repay is assessed by examining: Industry structure à industry fundamentals àcompany fundamentals àcompetitive position. Collateral: The quality and value of the assets pledged as collateral against the debt. Covenants: Provisions in a bond indenture that protect the lenders by requiring the borrower to perform some actions (affirmative covenants) or avoid some actions (negative covenants). Covenant analysis is especially important for high-yield bonds. Character: Refers to the quality of the management, strategy, quality… Read More

101 concepts level I

Concept 87: Factors that Influence the Level and Volatility of Yield Spreads

Credit cycle: Credit spreads narrow when the credit cycle improves; and they widen when the credit cycle is weakening. Broader economic conditions: Credit spreads widen in a weak economy and tend to narrow in a strong economy. Market performance: Credit spreads widen in weak financial markets and tend to narrow under stable market conditions. Broker-dealers’ willingness to provide sufficient capital for market listing: Unlike stocks that primarily trade on exchanges, bonds trade over-the-counter. Brokers and dealers are market makers in the debt market. Credit spreads tend to narrow if the availability of capital from broker/dealers is high. Supply and demand:… Read More

101 concepts level I

Concept 88: Forward Contracts, Futures Contracts, Options (Calls and Puts), Swaps, and Credit Derivatives

Forward contract is an obligation for one party to buy and another party to sell, an underlying asset at a specific price at a specific time in the future. It is an over-the-counter contract. Futures contract is similar to a forward contract but is a standardized contract and is traded on a futures exchange. Since it is an exchange traded derivative instrument, there is a daily settling of gains and losses. An option is a derivative contract in which the option buyer pays a sum of money to the option seller, and receives the right to either buy or sell… Read More

101 concepts level I

Concept 89: Purposes of and Controversies Related to Derivative Markets

Purposes: facilitate the transfer of risk allows strategies and payoffs not otherwise possible with spot assets provide information about the spot market offer lower transaction costs reduce the amount of capital required easier to short derivative than it is to short the underlying improve the efficiency of spot markets Controversies: They are sometimes referred to as a form of legalized gambling that can lead to destabilizing speculation.

101 concepts level I
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