The Investment Advisor Body of Knowledge + Test Bank

CHAPTER 10 Fixed-Income Vehicles

Stocks and stock markets get most of the attention among investors and their advisors, but fixed income securities and the funds invested through bond markets dwarf the amount of money invested in stocks worldwide. Investment advisors and consultants should understand bond basics such as the various types of fixed income investment structures and strategies, and their risks; but they should also be able to calculate or value these investments as well. This chapter takes a look at numerous fixed income investments in the United States and abroad, reviews the primary characteristics and risks of these investments, and calculates the values of these securities based on various events and circumstances.

Part I Portfolio Design: A Modern Approach to Asset Allocation: Bonds

Learning Objectives

• Explain the relationship between interest rates and inflation and discuss the history of inflation in the United States.
• Define and differentiate between nominal and real returns. Discuss the history of Treasury bond returns over time.
• Discuss the history of inflation and bond returns for developed countries over time.
• Discuss coupon yield, capital gain, total return, standard deviation, and the Sharpe Ratio of treasury bonds by maturity over time.
• Discuss default rates of U.S. bonds over time.
• Compare the returns and standard deviations of corporate bonds and treasury bonds over time.
• Describe and discuss the correlation of bonds and stocks over time.