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6 tips for scoring more in Fixed Income in CFA® Program Level I Exam

November 17, 2012
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Dear CFA Program Level I Candidate, we hope you have had a smooth preparation so far.

Preparing for the CFA examinations is not like the 100 meter sprint, it is like running a marathon. It is important to be consistent with your preparation. The most important thing you need while running a marathon is strategy and motivation. This is exactly what's required to pass the CFA Level I exam.

That's why we at EduPristine developed a new series called The Commandments & Sins of the CFA Level I Exam.  A commandment is a tip or trick you can implement in the exam and a sin is a common mistake that even smart candidates make in the exam.

In our first session, we will take a look at the topic that has the 3rd highest weight of 12% of the entire exam. That's the Fixed Income topic in CFA Level I.

  1. The Current Yield of a bond DOES NOT CHANGE with frequency of coupon payments. It is same for annual pay, semi-annual pay, quarterly pay or any other frequency coupon payments.
  2. While calculating Forward Rates from Spot Rates or Spot Rates from Forward Rates always draw the timeline with the cash flows for valuing fixed income securities. There is less scope of error when you visually understand what needs to be calculated.
  3. While asked to find the YTM of a bond, don't forget to adjust the outcome of I/Y on calculator with frequency of coupon payments. If you are calculating YTM using semi-annual coupon payments, multiply the outcome of I/Y * 2.
  4. PMT=0 always for Zero coupon bonds. If you don't explicitly press PMT=0, then the calculator will take the PMT value of your previous TVM calculation.
  5. While calculating the Yield to Call (YTC) or Yield to Put (YTP), FV changes to the Call Price or Put Price and not PV, and N changes to the Time till the call date.
  6. Effective Duration calculations explicitly take into account the a bond's option provisions such as embedded options. Only Callable bonds exhibit negative effective convexity and it is more prominent at lower interest rates. The other methods (Macaulay & Modified) ignore the option provision completely. The Macaulay and Modified Duration of a Callable Bond are always positive since they do not factor in the option.

We hope that the above points were useful for your preparation. We will send you such useful information before the exam.

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Please feel free to write to us for any help regarding your CFA exams.


About the Author

Trusted by Fortune 500 Companies and 10,000 Students from 40+ countries across the globe, it is one of the leading International Training providers for Finance Certifications like FRM®, CFA®, PRM®, Business Analytics, HR Analytics, Financial Modeling, and Operational Risk Modeling. EduPristine has conducted more than 500,000 man-hours of quality training in finance.


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