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Tài liệu hướng dẫn ôn thi CFA Level 1 phần Fixed Income: Analysis and Valuation | The following is a review of the Analysis of Fixed Income Investments principles designed to address the learning outcome statements set forth by CFA Institute . This topic is also covered in Introduction to the Valuation of Debt Securities Study Session 16 exam focus Bond valuation is all about calculating the present value of the promised cash flows. If your time-value-of-money TVM skills are not up to speed take the time now to revisit the Study Session 2 review of TVM concepts. The material in this topic review is very important. Calculating the value of a bond by discounting expected cash flows should become an easy exercise. The final material on discounting a bond s expected cash flows using spot rates and the idea of arbitrage-free bond valuation is quite important as well. A good understanding here will just make what follows easier to understand. LOS 64.a Explain the steps in the bond valuation process. The general procedure for valuing fixed-income securities or any security is to take the present values of all the expected cash flows and add them up to get the value of the security. There are three steps in the bond valuation process Step 1 Estimate the cash flows over the life of the security. For a bond there are two types of cash flows 1 the coupon payments and 2 the return of principal. Step 2 Determine the appropriate discount rate based on the risk of uncertainty about the receipt of the estimated cash flows. Step 3 Calculate the present value of the estimated cash flows by multiplying the bond s expected cash flows by the appropriate discount factors. LOS 64.b Identify the types of bonds for which estimating the expected cash flows is difficult and explain the problems encountered when estimating the cash flows for these bonds. Certainly one problem in estimating future cash flows for bonds is predicting defaults and any potential credit problems that make the receipt of future cash flows uncertain. Aside from credit risk however we can identify
