How do I choose the right fixed-income formula on CFA questions?

Question

AcadiFi · Accepted Answer

Start with the task word. If the prompt asks for value, discount the bond's cash flows. If it asks for yield, solve the discount rate implied by price. If it asks for settlement or full price, add accrued interest to clean price. If it asks for approximate price sensitivity, use duration and possibly convexity. If it asks for dollar exposure, scale the sensitivity into PVBP or money duration.

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The exam trap is using the formula you remember best instead of the formula the question actually asks for.

```mermaid
flowchart TD
  A["Task word"] --> B["Price or value"]
  A --> C["Yield or return"]
  A --> D["Full or clean price"]
  A --> E["Price sensitivity"]
  B --> F["Discount cash flows"]
  C --> G["Solve IRR"]
  D --> H["Add accrued interest"]
  E --> I["Duration, convexity, or PVBP"]
```

The exam trap is using the formula you remember best instead of the formula the question actually asks for.

How do I choose the right fixed-income formula on CFA questions?

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