Module 3 FIA

Carrying Value

Price approaching par value every year

Call Risk

Risk that investor might be paid too early

Liquidity Risk

Buy a bond and cant sell it in the market

Market Price Risk

If rates go up, price will fall

Macaulay Duration

weighted average time to the receipt of all cashflows.

Modified Duration

Percentage change and price of a bond given the change and the yield.

Approximate Modified Duration

the slope of the line that describes the relationship between price and yield.

Effective Duration

If markets move, what happens to the price of a bond

Key Rate Duration

Partial duration; estimate the change in price of the bond for very small changes in different rates along the yield curve at specific maturities

Horizon Yield

the total annual rate of return an investor expects from a bond held for a specific period, shorter than its maturity

Price Value of a Basis Point (PVBP)

estimate of the change in the full price given a 1 bp change in the YTM

Negative Convexity

occurs when a bond's price rises less for a downward yield move than it drops for an equal upward yield move