FIXED INCOME SECURITIES
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the relationship between bond price and yield?
Bond price and yield move in opposite directions — when yields rise, bond prices fall, and vice versa. This inverse relationship is fundamental to fixed income valuation.
What is a coupon bond and how does it make payments?
Bond paying periodic interest plus principal at maturity.
What does 'duration' measure in the context of a fixed income security?
Duration measures the weighted average time to receive all cash flows (coupons and principal) of a bond, expressed in years. It also serves as a measure of price sensitivity to interest rate changes.
What is the par value (face value) of a bond?
The principal amount repaid at maturity, typically Rs 100 or Rs 1000.
How is Macaulay Duration different from Modified Duration?
Macaulay Duration is the weighted average time to cash flows, while Modified Duration adjusts it by dividing by (1 + yield/m) to directly measure percentage price change per 1% change in yield.
What is a perpetual bond?
Bond with no maturity date that pays interest indefinitely.
What is convexity in fixed income securities?
Convexity measures the curvature of the price-yield relationship of a bond, capturing the non-linear sensitivity that duration alone cannot explain. Positive convexity means price rises more than it falls for equal yield changes.
What is the current yield of a bond?
Annual coupon payment divided by the bond's current market price.
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