Bond Yields and Return Calculations (FRM Part 1 2023 – Book 4 – Chapter 11)
For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: https://analystprep.com/shop/unlimite...
AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams
After completing this reading, you should be able to:
- Distinguish between gross and net realized returns, and calculate the realized return for a bond over a holding period including reinvestments.
- Define and interpret the spread of a bond, and explain how a spread is derived from a bond price and a term structure of rates.
- Define, interpret, and apply a bond’s yield-to-maturity (YTM) to bond pricing.
- Compute a bond’s YTM given a bond structure and price.
- Calculate the price of an annuity and a perpetuity.
- Explain the relationship between spot rates and YTM.
- Define the coupon effect and explain the relationship between coupon rate, YTM, and bond prices.
- Explain the decomposition of P&L for a bond into separate factors including carry roll-down, rate change, and spread change effects.
- Identify the most common assumptions in carry roll-down scenarios, including realized forwards, unchanged term structure, and unchanged yields.