CFA L1 / FI / M2. Cash Flows
Module 2 · Fixed Income

Fixed-Income Cash Flows and Types

EN: Principal repayment structures, coupon types.
VN: Cấu trúc trả gốc và các loại lãi suất coupon.

1. Principal Structures Concept

About: Bullet (all at maturity, most common), amortizing (gradual, mortgages/ABS), sinking fund (gradual retirement), balloon (small periodic + lump). Affects duration.Tóm tắt: Bullet, amortizing, sinking fund, balloon. Ảnh hưởng duration.
  • Bullet All principal at maturity (most common).
  • Amortizing Principal repaid over life of bond (mortgages, ABS).
  • Sinking fund Issuer retires bonds gradually via redemptions.
  • Balloon Periodic small payments + large lump at maturity.

2. Coupon Types Concept

About: Fixed-rate, floating-rate (tied to reference rate + spread), step-up, zero-coupon (deep discount), PIK (paid in additional bonds), inflation-linked (TIPS).Tóm tắt: Fixed, floating, step-up, zero-coupon, PIK, inflation-linked.
  • Fixed-rate Coupon constant for life.
  • Floating-rate (FRN) Coupon = reference rate + spread.
  • Step-up Pre-defined increases in coupon over time.
  • Zero-coupon Issued at deep discount, single payment at maturity.
  • PIK Payment-in-kind — coupon paid in additional bonds.
  • Inflation-linked (TIPS) Principal or coupon adjusted for CPI.

3. Contingency Provisions Concept

About: Optional features that change cash flows: call (issuer redeems), put (holder demands payment), convert (into equity). Each affects yield/duration.Tóm tắt: Tính năng tùy chọn: call, put, convert. Đều ảnh hưởng yield/duration.
  • Call Optional redemption by issuer.
  • Put Optional redemption by holder.
  • Conversion Convert into equity.

Practice problem Practice

Practice problem

A 10-year zero-coupon bond has face $1,000 and YTM 4%. Issue price?

Show solution
Price = 1000 / (1.04)\(^{10}\)
= 1000 / 1.4802
≈ $675.56 (deep discount)