SCHWESERNOTES 2023 LEVEL I CFA BOOK 4 FIXED INCOME, DERIVATIVES, AND ALTERNATIVE INVESTMENTS

Book 4: Fixed Income, Derivatives, and Alternative Investments
Learning Outcome Statements (LOS)
Reading 42 Fixed-Income Securities: Defining Elements
	Exam Focus
	Module 42.1: Bond Indentures, Regulation, and Taxation
		Issuers of Bonds
		Bond Maturity
		Par Value
		Coupon Payments
		Currencies
			Issuing entities
			Sources of repayment
			Collateral and credit enhancements
		Taxation of Bond Income
	Module 42.2: Bond Cash Flows and Contingencies
		Floating-Rate Notes
		Other Coupon Structures
		Putable Bonds
		Convertible Bonds
		Warrants
		Contingent Convertible Bonds
	Key Concepts
		LOS 42.a
		LOS 42.b
		LOS 42.c
		LOS 42.d
		LOS 42.e
		LOS 42.f
	Answer Key for Module Quizzes
	Module Quiz 42.1
	Module Quiz 42.2
Reading 43 Fixed-Income Markets: Issuance, Trading, and Funding
	Exam Focus
	Module 43.1: Types of Bonds and Issuers
	Module 43.2: Corporate Debt and Funding Alternatives
		Bank Debt
		Commercial Paper
		Corporate Bonds
	Key Concepts
		LOS 43.a
		LOS 43.b
		LOS 43.c
		LOS 43.d
		LOS 43.e
		LOS 43.f
		LOS 43.g
		LOS 43.h
		LOS 43.i
		LOS 43.j
	Answer Key for Module Quizzes
Reading 44 Introduction to Fixed-Income Valuation
	Exam Focus
	Module 44.1: Bond Valuation and Yield to Maturity
		Calculating the Value of an Annual Coupon Bond
		Relationship Between Price and Maturity
	Module 44.2: Spot Rates and Accrued Interest
	Module 44.3: Yield Measures
		Yield Measures for Fixed-Rate Bonds
		Floating-Rate Note Yields
	Module 44.4: Yield Curves
		The Relationship Between Short-Term Forward Rates and Spot Rates
		Forward Rates Given Spot Rates
		Valuing a Bond Using Forward Rates
	Module 44.5: Yield Spreads
		Zero-Volatility and Option-Adjusted Spreads
	Key Concepts
		LOS 44.a
		LOS 44.b
		LOS 44.c
		LOS 44.d
		LOS 44.e
		LOS 44.f
		LOS 44.g
		LOS 44.h
		LOS 44.i
		LOS 44.j
		LOS 44.k
	Answer Key for Module Quizzes
Reading 45 Introduction to Asset-Backed Securities
	Exam Focus
	Module 45.1: Structure of Mortgage-Backed Securities
		Maturity
		Interest Rate
		Amortization of Principal
		Prepayment Provisions
		Foreclosure
	Module 45.2: Prepayment Risk and Non-Mortgage-Backed ABS
		Prepayment Risk
		Collateralized Mortgage Obligations
		Sequential Pay CMO
		Planned Amortization Class (PAC) CMO
		Nonagency RMBS
		Auto Loan ABS
		Credit Card ABS
	Key Concepts
		LOS 45.a
		LOS 45.b
		LOS 45.c
		LOS 45.d
		LOS 45.e
		LOS 45.f
		LOS 45.g
		LOS 45.h
		LOS 45.i
		LOS 45.j
	Answer Key for Module Quizzes
Reading 46 Understanding Fixed-Income Risk and Return
	Exam Focus
	Module 46.1: Sources of Returns, Duration
		Macaulay Duration
		Modified Duration
		Approximate Modified Duration
		Effective Duration
	Module 46.2: Interest Rate Risk and Money Duration
	Module 46.3: Convexity and Yield Volatility
	Key Concepts
		LOS 46.a
		LOS 46.b
		LOS 46.c
		LOS 46.d
		LOS 46.e
		LOS 46.f
		LOS 46.g
		LOS 46.h
		LOS 46.i
		LOS 46.j
		LOS 46.k
		LOS 46.l
		LOS 46.m
	Answer Key for Module Quizzes
Reading 47 Fundamentals of Credit Analysis
	Exam Focus
	Module 47.1: Credit Risk and Bond Ratings
		Capacity
			Industry structure
			Industry fundamentals
			Company fundamentals
		Collateral
		Covenants
		Character
	Module 47.2: Evaluating Credit Quality
		Profits and Cash Flows
		Leverage Ratios
		Coverage Ratios
		High Yield Debt
		Sovereign Debt
		Non-Sovereign Government Bonds
	Key Concepts
		LOS 47.a
		LOS 47.b
		LOS 47.c
		LOS 47.d
		LOS 47.e
		LOS 47.f
		LOS 47.g
		LOS 47.h
		LOS 47.i
		LOS 47.j
	Answer Key for Module Quizzes
	Topic Quiz: Fixed Income
Reading 48 Derivative Instrument and Derivative Market Features
	Module 48.1: Derivatives Markets
		Underlying Assets and Variables
		Exchange-Traded Derivatives
		Dealer (OTC) Markets for Derivatives
	Key Concepts
		LOS 48.a
		LOS 48.b
	Answer Key for Module Quizzes
Reading 49 Forward Commitment and Contingent Claim Features and Instruments
	Module 49.1: Forwards and Futures
		Forward Contracts
		Futures Contracts
	Module 49.2: Swaps and Options
		Swaps
		Credit Swaps
		Options
		Call Option Profits and Losses
		Put Option Profits and Losses
	Key Concepts
		LOS 49.a
		LOS 49.b
		LOS 49.c
	Answer Key for Module Quizzes
Reading 50 Derivative Benefits, Risks, and Issuer and Investor Uses
	Module 50.1: Uses, Benefits, and Risks of Derivatives
		Advantages of Derivatives
			Ability to change risk allocation, transfer risk, and manage risk
			Information discovery
			Operational advantages
			Improved market efficiency
		Risks of Derivatives
			Implicit leverage
			Basis risk
			Liquidity risk
			Counterparty credit risk
			Systemic risk
		Derivatives Use by Issuers
		Derivatives Use by Investors
	Key Concepts
		LOS 50.a
		LOS 50.b
	Answer Key for Module Quizzes
Reading 51 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
	Module 51.1: Arbitrage, Replication, and Carrying Costs
		Forward Contracts on Currencies
	Key Concepts
		LOS 51.a
		LOS 51.b
	Answer Key for Module Quizzes
Reading 52 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
	Module 52.1: Forward Contract Valuation
	Key Concepts
		LOS 52.a
		LOS 52.b
	Answer Key for Module Quizzes
Reading 53 Pricing and Valuation of Futures Contracts
	Module 53.1: Futures Valuation
	Key Concepts
		LOS 53.a
		LOS 53.b
	Answer Key for Module Quizzes
Reading 54 Pricing and Valuation of Interest Rates and Other Swaps
	Module 54.1: Swap Valuation
	Key Concepts
		LOS 54.a
		LOS 54.b
	Answer Key for Module Quizzes
Reading 55 Pricing and Valuation of Options
	Module 55.1: Option Valuation
		Upper Bound for Call Options
		Upper Bound for Put Options
		Lower Bounds for Options
	Key Concepts
		LOS 55.a
		LOS 55.b
		LOS 55.c
	Answer Key for Module Quizzes
Reading 56 Option Replication Using Put–Call Parity
	Module 56.1: Put–Call Parity
		Application of Options Theory to Corporate Finance
	Key Concepts
		LOS 56.a
		LOS 56.b
	Answer Key for Module Quizzes
Reading 57 Valuing a Derivative Using a One-Period Binomial Model
	Module 57.1: Binomial Model for Option Values
	Key Concepts
		LOS 57.a
		LOS 57.b
	Answer Key for Module Quizzes
	Topic Quiz: Derivatives
Reading 58 Categories, Characteristics, and Compensation Structures of Alternative Investments
	Module 58.1: Alternative Investment Structures
		Fee Structures
	Key Concepts
		LOS 58.a
		LOS 58.b
		LOS 58.c
	Answer Key for Module Quizzes
Reading 59 Performance Calculation and Appraisal of Alternative Investments
	Module 59.1: Performance Appraisal and Return Calculations
		Performance Appraisal for Private Capital and Real Estate
			Negotiated fee structures
	Key Concepts
		LOS 59.a
		LOS 59.b
	Answer Key for Module Quizzes
Reading 60 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds
	Module 60.1: Private Equity and Private Debt
		Private Equity
			Private equity strategies
			Private equity exit strategies
			Private equity potential benefits and risks
		Risks and Returns of Private Capital
	Module 60.2: Real Estate, Infrastructure, and Natural Resources
		Potential Benefits and Risks of Real Estate
		Real Estate Investment Due Diligence
		Commodities
			Potential benefits and risks of commodities
			Commodity prices and investments
			Commodity valuation
		Farmland and Timberland
	Module 60.3: Hedge Funds
		Hedge Fund Strategies
		Hedge Fund Potential Benefits and Risks
	Key Concepts
		LOS 60.a
		LOS 60.b
		LOS 60.c
		LOS 60.d
		LOS 60.e
		LOS 60.f
	Answer Key for Module Quizzes
	Topic Quiz: Alternative Investments
Appendix
	Rates, Returns, and Yields
	Compounding Frequency
	Bond Quotations and Terminology
	Internal Rate of Return (IRR)
	Money Market Securities
Formulas
Index