© CFA Institute. For candidate use only. Not for distribution.
FIXED INCOME
CFA® Program Curriculum
2024 • LEVEL 1 • VOLUME 4
,© CFA Institute. For candidate use only. Not for distribution.
©2023 by CFA Institute. All rights reserved. This copyright covers material written
expressly for this volume by the editor/s as well as the compilation itself. It does
not cover the individual selections herein that first appeared elsewhere. Permission
to reprint these has been obtained by CFA Institute for this edition only. Further
reproductions by any means, electronic or mechanical, including photocopying and
recording, or by any information storage or retrieval systems, must be arranged with
the individual copyright holders noted.
CFA®, Chartered Financial Analyst®, AIMR-PPS®, and GIPS® are just a few of the
trademarks owned by CFA Institute. To view a list of CFA Institute trademarks and the
Guide for Use of CFA Institute Marks, please visit our website at www.cfainstitute.org.
This publication is designed to provide accurate and authoritative information
in regard to the subject matter covered. It is sold with the understanding that the
publisher is not engaged in rendering legal, accounting, or other professional service.
If legal advice or other expert assistance is required, the services of a competent pro-
fessional should be sought.
All trademarks, service marks, registered trademarks, and registered service marks
are the property of their respective owners and are used herein for identification
purposes only.
ISBN 978-1-953337-52-8 (paper)
ISBN 978-1-953337-26-9 (ebook)
May 2023
, © CFA Institute. For candidate use only. Not for distribution.
CONTENTS
How to Use the CFA Program Curriculum ix
Errata ix
Designing Your Personal Study Program ix
CFA Institute Learning Ecosystem (LES) x
Prerequisite Knowledge x
Feedback x
Fixed Income
Learning Module 1 Fixed-Income Instrument Features 3
Introduction 3
Features of Fixed-Income Securities 6
Issuer 8
Maturity 8
Principal (Par or Face Value) 9
Coupon Rate and Frequency 9
Seniority 9
Contingency Provisions 10
Yield Measures 11
Yield Curves 11
Bond Indentures and Covenants 14
Bond Indentures 14
Sources of Repayment 14
Bond Covenants 16
Practice Problems 20
Solutions 22
Learning Module 2 Fixed-Income Cash Flows and Types 23
Introduction 23
Fixed-Income Cash Flow Structures 26
Amortizing Debt 27
Variable Interest Debt 32
Zero-Coupon Structures 36
Deferred Coupon Structures 36
Fixed-Income Contingency Provisions 38
Callable Bonds 39
Putable Bonds 40
Convertible Bonds 40
Legal, Regulatory, and Tax Considerations 44
Legal and Regulatory Considerations 44
Tax Considerations 47
Practice Problems 51
Solutions 53
, © CFA Institute. For candidate use only. Not for distribution.
iv Contents
Learning Module 3 Fixed-Income Issuance and Trading 55
Introduction 55
Fixed-Income Segments, Issuers, and Investors 57
Fixed-Income Indexes 65
Primary and Secondary Fixed-Income Markets 70
Primary Fixed-Income Markets 70
Secondary Fixed-Income Markets 72
Practice Problems 75
Solutions 76
Learning Module 4 Fixed-Income Markets for Corporate Issuers 77
Introduction 77
Short-Term Funding Alternatives 80
External Loan Financing 80
External, Security-Based Financing 82
Short-Term Funding Alternatives for Financial Institutions 82
Repurchase Agreements 86
Repurchase Agreement Applications and Benefits 89
Risks Associated with Repurchase Agreements 92
Long-Term Corporate Debt 95
Similarities between Long-Term Investment-Grade and High-Yield
Issuance 96
Differences between IG and HY Issuance 96
Practice Problems 102
Solutions 104
Learning Module 5 Fixed-Income Markets for Government Issuers 105
Introduction 105
Sovereign Debt 107
Sovereign Debt Issuance and Trading 115
Non-Sovereign, Quasi-Government, and Supranational Agency Debt 118
Government Agencies 119
Local and Regional Government Authorities 119
Supranational Organizations 120
Practice Problems 123
Solutions 124
Learning Module 6 Fixed-Income Bond Valuation: Prices and Yields 125
Introduction 125
Bond Pricing and the Time Value of Money 129
Bond Pricing with a Market Discount Rate 130
Yield-to-Maturity 132
Flat Price, Accrued Interest, and the Full Price 134
Relationships between Bond Prices and Bond Features 141
Inverse Relationship 142
Coupon Effect 142
Maturity Effect 143
Constant-Yield Price Trajectory 143
FIXED INCOME
CFA® Program Curriculum
2024 • LEVEL 1 • VOLUME 4
,© CFA Institute. For candidate use only. Not for distribution.
©2023 by CFA Institute. All rights reserved. This copyright covers material written
expressly for this volume by the editor/s as well as the compilation itself. It does
not cover the individual selections herein that first appeared elsewhere. Permission
to reprint these has been obtained by CFA Institute for this edition only. Further
reproductions by any means, electronic or mechanical, including photocopying and
recording, or by any information storage or retrieval systems, must be arranged with
the individual copyright holders noted.
CFA®, Chartered Financial Analyst®, AIMR-PPS®, and GIPS® are just a few of the
trademarks owned by CFA Institute. To view a list of CFA Institute trademarks and the
Guide for Use of CFA Institute Marks, please visit our website at www.cfainstitute.org.
This publication is designed to provide accurate and authoritative information
in regard to the subject matter covered. It is sold with the understanding that the
publisher is not engaged in rendering legal, accounting, or other professional service.
If legal advice or other expert assistance is required, the services of a competent pro-
fessional should be sought.
All trademarks, service marks, registered trademarks, and registered service marks
are the property of their respective owners and are used herein for identification
purposes only.
ISBN 978-1-953337-52-8 (paper)
ISBN 978-1-953337-26-9 (ebook)
May 2023
, © CFA Institute. For candidate use only. Not for distribution.
CONTENTS
How to Use the CFA Program Curriculum ix
Errata ix
Designing Your Personal Study Program ix
CFA Institute Learning Ecosystem (LES) x
Prerequisite Knowledge x
Feedback x
Fixed Income
Learning Module 1 Fixed-Income Instrument Features 3
Introduction 3
Features of Fixed-Income Securities 6
Issuer 8
Maturity 8
Principal (Par or Face Value) 9
Coupon Rate and Frequency 9
Seniority 9
Contingency Provisions 10
Yield Measures 11
Yield Curves 11
Bond Indentures and Covenants 14
Bond Indentures 14
Sources of Repayment 14
Bond Covenants 16
Practice Problems 20
Solutions 22
Learning Module 2 Fixed-Income Cash Flows and Types 23
Introduction 23
Fixed-Income Cash Flow Structures 26
Amortizing Debt 27
Variable Interest Debt 32
Zero-Coupon Structures 36
Deferred Coupon Structures 36
Fixed-Income Contingency Provisions 38
Callable Bonds 39
Putable Bonds 40
Convertible Bonds 40
Legal, Regulatory, and Tax Considerations 44
Legal and Regulatory Considerations 44
Tax Considerations 47
Practice Problems 51
Solutions 53
, © CFA Institute. For candidate use only. Not for distribution.
iv Contents
Learning Module 3 Fixed-Income Issuance and Trading 55
Introduction 55
Fixed-Income Segments, Issuers, and Investors 57
Fixed-Income Indexes 65
Primary and Secondary Fixed-Income Markets 70
Primary Fixed-Income Markets 70
Secondary Fixed-Income Markets 72
Practice Problems 75
Solutions 76
Learning Module 4 Fixed-Income Markets for Corporate Issuers 77
Introduction 77
Short-Term Funding Alternatives 80
External Loan Financing 80
External, Security-Based Financing 82
Short-Term Funding Alternatives for Financial Institutions 82
Repurchase Agreements 86
Repurchase Agreement Applications and Benefits 89
Risks Associated with Repurchase Agreements 92
Long-Term Corporate Debt 95
Similarities between Long-Term Investment-Grade and High-Yield
Issuance 96
Differences between IG and HY Issuance 96
Practice Problems 102
Solutions 104
Learning Module 5 Fixed-Income Markets for Government Issuers 105
Introduction 105
Sovereign Debt 107
Sovereign Debt Issuance and Trading 115
Non-Sovereign, Quasi-Government, and Supranational Agency Debt 118
Government Agencies 119
Local and Regional Government Authorities 119
Supranational Organizations 120
Practice Problems 123
Solutions 124
Learning Module 6 Fixed-Income Bond Valuation: Prices and Yields 125
Introduction 125
Bond Pricing and the Time Value of Money 129
Bond Pricing with a Market Discount Rate 130
Yield-to-Maturity 132
Flat Price, Accrued Interest, and the Full Price 134
Relationships between Bond Prices and Bond Features 141
Inverse Relationship 142
Coupon Effect 142
Maturity Effect 143
Constant-Yield Price Trajectory 143
