CONTENTS
PART I
Learning Outcomes, Summary Overview, and Problems
CHAPTER 1
Features of Debt Securities 3
Learning Outcomes 3
Summary Overview 3
Problems 5
CHAPTER 2
Risks Associated with Investing in Bonds 8
Learning Outcomes 8
Summary Overview 9
Problems 11
CHAPTER 3
Overview of Bond Sectors and Instruments 15
Learning Outcomes 15
Summary Overview 16
Problems 19
CHAPTER 4
Understanding Yield Spreads 22
Learning Outcomes 22
Summary Overview 23
Problems 25
CHAPTER 5
Introduction to the Valuation of Debt Securities 29
Learning Outcomes 29
Summary Overview 29
Problems 31
CHAPTER 6
Yield Measures, Spot Rates, and Forward Rates 33
Learning Outcomes 33
Summary Overview 34
Problems 35
CHAPTER 7
Introduction to the Measurement of Interest Rate Risk 41
Learning Outcomes 41
Summary Overview 42
Problems 44
CHAPTER 8
Term Structure and Volatility of Interest Rates 49
Learning Outcomes 49
Summary Overview 49
Problems 52
CHAPTER 9
Valuing Bonds with Embedded Options 55
Learning Outcomes 55
Summary Overview 55
Problems 58
CHAPTER 10
Mortgage-Backed Sector of the BondMarket 63
Learning Outcomes 63
Summary Overview 63
Problems 65
CHAPTER 11
Asset-Backed Sector of the BondMarket 73
Learning Outcomes 73
Summary Overview 73
Problems 78
CHAPTER 12
ValuingMortgage-Backed and Asset-Backed Securities 83
Learning Outcomes 83
Summary Overview 83
Problems 86

CHAPTER 13
Interest Rate Derivative Instruments 92
Learning Outcomes 92
Summary Overview 92
Problems 94
CHAPTER 14
Valuation of Interest Rate Derivative Instruments 98
Learning Outcomes 98
Summary Overview 99
Problems 100
CHAPTER 15
General Principles of Credit Analysis 106
Learning Outcomes 106
Summary Overview 107
Problems 109
CHAPTER 16
Introduction to Bond Portfolio Management 114
Learning Outcomes 114
Summary Overview 114
Problems 116
CHAPTER 17
Measuring a Portfolio’s Risk Profile 119
Learning Outcomes 119
Summary Overview 120
Problems 122
CHAPTER 18
Managing Funds Against a Bond Market Index 129
Learning Outcomes 129
Summary Overview 130
Problems 132
CHAPTER 19
Portfolio Immunization and Cash Flow Matching 140
Learning Outcomes 140
Summary Overview 140
Problems 142

CHAPTER 20
Relative-ValueMethodologies for Global Credit Bond
Portfolio Management 144
Learning Outcomes 144
Summary Overview 144
Problems 146
CHAPTER 21
International Bond Portfolio Management 151
Learning Outcomes 151
Summary Overview 152
Problems 155
CHAPTER 22
Controlling Interest Rate Risk with Derivatives 159
Learning Outcomes 159
Summary Overview 160
Problems 162
CHAPTER 23
HedgingMortgage Securities to Capture Relative Value 167
Learning Outcomes 167
Summary Overview 167
Problems 169
CHAPTER 24
Credit Derivatives in Bond Portfolio Management 172
Learning Outcomes 172
Summary Overview 172
Problems 174
PART II
Solutions
CHAPTER 1
Features of Debt Securities 183
Solutions 183
CHAPTER 2
Risks Associated with Investing in Bonds 186
Solutions 186

CHAPTER 3
Overview of Bond Sectors and Instruments 191
Solutions 191
CHAPTER 4
Understanding Yield Spreads 197
Solutions 197
CHAPTER 5
Introduction to the Valuation of Debt Securities 201
Solutions 201
CHAPTER 6
Yield Measures, Spot Rates, and Forward Rates 207
Solutions 207
CHAPTER 7
Introduction to the Measurement of Interest Rate Risk 219
Solutions 219
CHAPTER 8
Term Structure and Volatility of Interest Rates 225
Solutions 225
CHAPTER 9
Valuing Bonds with Embedded Options 231
Solutions 231
CHAPTER 10
Mortgage-Backed Sector of the Bond Market 238
Solutions 238
CHAPTER 11
Asset-Backed Sector of the BondMarket 251
Solutions 251
CHAPTER 12
ValuingMortgage-Backed and Asset-Backed Securities 258
Solutions 258

CHAPTER 13
Interest Rate Derivative Instruments 264
Solutions 264
CHAPTER 14
Valuation of Interest Rate Derivative Instruments 270
Solutions 270
CHAPTER 15
General Principles of Credit Analysis 281
Solutions 281
CHAPTER 16
Introduction to Bond Portfolio Management 287
Solutions 287
CHAPTER 17
Measuring a Portfolio’s Risk Profile 290
Solutions 290
CHAPTER 18
Managing Funds Against a Bond Market Index 298
Solutions 298
CHAPTER 19
Portfolio Immunization and Cash Flow Matching 307
Solutions 307
CHAPTER 20
Relative-ValueMethodologies for Global Credit Bond
Portfolio Management 311
Solutions 311
CHAPTER 21
International Bond Portfolio Management 316
Solutions 316

CHAPTER 22
Controlling Interest Rate Risk with Derivatives 324
Solutions 324
CHAPTER 23
HedgingMortgage Securities to Capture Relative Value 331
Solutions 331
CHAPTER 24
Credit Derivatives in Bond Portfolio Management 335
Solutions 335
About the CFA Program 343