IFMP Fixed Income Securities Certification (FISC), Pakistan cheat sheet

Fixed Income Securities (FISC Pakistan)

• Bond price equals the present value of all future coupon payments plus principal, discounted at the yield to maturity; price and yield move inversely.

• Clean price excludes accrued interest; dirty (full) price = clean price + accrued interest, where accrued interest = coupon rate × days since last coupon ÷ days in coupon period.

• Current yield = annual coupon ÷ clean market price; it ignores capital gain or loss and reinvestment, so it is a rough, not total, return measure.

• Yield to maturity solves price = Σ C/(1+y)^t + F/(1+y)^n; it assumes all coupons are reinvested at y until maturity.

• Duration (Macaulay) = weighted average time to cash flows; modified duration = Macaulay duration ÷ (1 + y/m), and percentage price change ≈ −modified duration × Δy.

• Convexity adjusts duration estimates: ΔP/P ≈ −D_mod × Δy + ½ × convexity × (Δy)², making price estimates more accurate for larger yield moves.

• Zero-coupon bonds trade at a discount to face value, pay no interim coupons, and have duration equal to their time to maturity.

• For a given maturity and coupon, lower-coupon and longer-maturity bonds carry higher interest-rate risk; duration rises as coupon falls and maturity lengthens.

• Pakistan market conventions: PKR government securities (T-bills, PIBs) are quoted on a yield basis; T-bills are sold at discount and PIBs pay semi-annual coupons, with settlement typically T+1 for government securities.