CFA Notes - Fixed Income - II

Note

（I）Issues Relate to Collateral on Bond

i. Collateral

Collateral are assets of financial guarantess underlying the debt obligation above and beyond the issuer's promise to pay.

ii. Covenants

A loan covenants is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrowers from undertaking certain actions, of which possibly restricts certain activities to circumstances when conditions are met.

iii. Pledge

A pledge is a bailment that conveys possessory title to property owned by a debtor to a creditor to secure repayment for some debt or obligation and to the mutual benefit of both parties.

iv. Secured

v. Obligation

vi. Mortgage

（II） Bond Yield

i. Bond Yield

Bond yield is the amount of return an investor realized on a bond. It is the interest paid divided by the face value of the bond. It is known as an annual rate.

ii. Yield-to-maturity

Yield-to-maturity（YTM） is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield, but it is expressd as an annual rate.

iii. Spot Rate

Spot rate is the interest rate which makes price of pure discount rate bond equal to PV of its face value.

iv. Forward Rate

A forward rate is the interest rate on a bond or money market instrument traded in a forward market.