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Module R10 · VRM 9–13, FMP 16, 18–20

Rates and bonds for the exam

What the free site already teaches (discounting, spot and forward rates, duration, convexity, swaps) is reused; this module adds the exam-specific pieces: quote conventions, realised return and carry roll-down, DV01 variants and the two-bond hedge, key-rate 01s, PCA hedging, MBS prepayment, bond and SOFR futures.

7 lessons · 22 interactive figures · 49 exercises

1. 1Pricing conventions: T-bills, bonds between coupons, par rates
   Quotes are not prices. This lesson converts every quote the exam uses into cash.7 exercises
2. 2Realised return, carry roll-down and the P&L decomposition
   A bond's return is what you assumed about tomorrow's curve. Say the assumption out loud and the P&L splits into four pieces.7 exercises
3. 3DV01, duration, convexity and the two-bond hedge
   DV01 is a dollar. Duration is a percentage. Convexity is the correction when the move is big.7 exercises
4. 4Key-rate 01s, bucketing and PCA hedging
   A parallel shift is one scenario. Ten key rates are ten. PCA says three would have done.7 exercises
5. 5Mortgages, prepayment and MBS
   A mortgage pool pays back early when rates fall, which is exactly when you did not want the cash.7 exercises
6. 6Bond futures, cheapest-to-deliver and SOFR futures
   The short chooses which bond to deliver. Conversion factors make the choice almost fair, and "almost" is the whole lesson.7 exercises
7. 7Swaps and FRAs, exam style
   The free site prices swaps off a multicurve. The exam wants the bond view, the FRA view, and the currency swap as two bonds.7 exercises