Reading 46 ■ Understanding Fixed-Income Risk and Return

CFA Level I Fixed Income
#1

Hi,

Need a suggestion: Is it better to memorize the formulas before going to the back of the curriculum questions or solve them looking at them and then memorize once get a hang of the language etc?

I have done the reading 46 “Understanding Fixed-Income Risk and Return” and keep on getting the mix of a few conceptual formulas.

#2

First, instead of memorizing them, you should try to understand them; with understanding will come memory, much easier.

Second, when you’re in the learning stage, by all means go back and look at a formula if you can’t recall it. Nothing is gained by agonizing to try to remember a formula.

#3

Very much appreciated!!! Thanks million:)

#4

My pleasure.

#5

Im in this reading right now and it`s probably the hardest reading of fixed income, try to understand how the Approx Modified Duration works that is PV(when interest goes down) - PV(when interest hoes up)/2*delta yield*PV

Delta Yield usually comes in BPS (i think its kinda trick to convert)

When you have this you can calculate Approx. Macaulay duration = Approx. Mod. Duration * (1+r)

If the question doesn`t give bps you have more work you need to discount each cash flow than divide each cash flow by the pv of the bond so you get a weight than you multiply each weight for the number of periods you discounted than you sum the result and you have the Macaulay Duration for the Bond.

Effective Duration Formula is almost the same as Approx. Modified Duration formula, the only things that changes it it`s denominator that is delta curve instead of delta yield.

#6

I read the CFA Official Material, for the topics I found really hard I get some support with Mark Meldrum`s video, there we go the one for this, it helped me a lot (how the book explain this reading is not that easy to understand):

https://www.youtube.com/watch?v=ynHqvPF4b-4&list=PLM9WI-4yn8BI0Jy0CH0SQw9ZMiYTWBz0c&index=55

Than practice the questions (the ones in between the reading and the EOCQ) without looking to the solution it first try to do it by yourself, if you don`t got it right review the formula and try again.

#7

thank you!