20506 Fixed Income Securities
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particular session, location and mode of offering is the authoritative source
of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.
Subject handbook information prior to 2024 is available in the Archives.
Credit points: 6 cp
Subject level:
Undergraduate
Result type: Grade and marksRequisite(s): 25300 Fundamentals of Business Finance
There are course requisites for this subject. See access conditions.
Description
The market for fixed income financial instruments is the financial sector's largest worldwide. This specialised subject focuses on the conceptual and theoretical aspects of interest rates and interest rate risk management in local and international fixed income markets.
The subject includes material on the term structure of interest rate, including spot, forward and swap interest rate structures. The pricing of fixed and floating rate bond pricing is addressed. The role of bond portfolio strategies in generating speculative profits and in the reduction of portfolio risk is examined in depth. Students are provided with an insight into financial engineering in their construction of fairly priced structured notes.
The subject focuses students on the practical problems of fixed income portfolio management through a series of hands-on, computer-based simulation exercises. This is a quantitative-based subject where applied problems and calculations are emphasised.
Subject learning objectives (SLOs)
| 1. | Demonstrate an understanding of the characteristics of the term structure of interest rates and be able to transform a coupon bond based term structures into their zero-coupon, forward and par rate equivalents |
|---|---|
| 2. | Evaluate the characteristics of fixed income portfolios such as duration, basis point value and convexity |
| 3. | Assess the risks and profitable opportunities of fixed interest portfolios |
| 4. | Explain how risks inherent in fixed income securities can be managed |
Contribution to the development of graduate attributes
This subject is aligned with the professional and technical skills necessary for the finance profession in Shanghai.
This subject contributes to the development of the following graduate attribute:
- Business practice oriented skills
This subject also contributes specifically to develop the following Program Learning Objectives:
- Demonstrate work-ready disciplinary knowledge (5.1)
- Apply technical skills necessary for professional practice in business (5.2)
Teaching and learning strategies
The course will be taught using a combination of face-to-face lectures/seminars, class discussion and practical situation analyses. Class discussions are employed to promote and reinforce understanding and provide direction to students in planning their self-study. Applied Excel exercises are undertaken by students, during class, either individually or in groups, to apply theoretical concepts to the analysis of specific financial market and investment situations found in the Shanghai financial sector. Students will be faced with the same issues that finance professionals face in their day-to-day professional practice.
The lecture program is designed to encourage interaction between the lecturer and students. To facilitate this, students are required to undertake pre-class work, details of which are in the weekly program. Student feedback will be provided through in-class discussion following applied exercises and after assignment completion.
The subject is technical and quantitative and should only be attempted by students with a solid mathematical grounding and with high level computer spreadsheet expertise.
Online resources will be used to cover the basic financial notions underpinning the different portfolio strategies and provide examples of existing financial products and strategies. The UTS Learning Management System is central to the provision of digital resources for this subject. For each class the following resources reside on the subject's Subject Documents section of UTS Learning Management System:
- Lecture background notes,
- Lecture PowerPoint lecture notes,
- Problems and Exercises documents and,
- Excel Exercises workbook
Content (topics)
- The financial environment and influences on interest rates
- The term structure of interest rates; zero-coupon spot rates forward rates and swap rates.
- Pricing and hedging fixed and floating rate bonds
- Interest rate derivatives, mortgaged backed securities, option embedded instruments
- Risk management characteristics of fixed income portfolios.
- Bond portfolio management simulations.
- Interest rate futures and structured fixed income instruments
Assessment
Assessment task 1: Situation Analysis (Individual)
| Objective(s): | This addresses subject learning objective(s): 1 |
|---|---|
| Weight: | 25% |
Assessment task 2: Fixed Income Valuation Assignment (Individual)
| Objective(s): | This addresses subject learning objective(s): 2 and 3 |
|---|---|
| Weight: | 25% |
Assessment task 3: Final Exam (Individual)
| Objective(s): | This addresses subject learning objective(s): 4 |
|---|---|
| Weight: | 50% |
Minimum requirements
Students must achieve at least 50% of the subject’s total marks.
Required texts
No Text is required. A set of lecture notes is provided on CANVAS
References
Fabozzi, F. J., 2012, Bond Markets, Analysis and Strategies, 8th edition, Prentice-Hall,
Hunt, B., and C. Terry, 2014, Financial Institutions and Markets, 7th edition, Cengage.
Other resources
The lecture notes will be available on CANVAS. Students will be provided with problem sets to be discussed in class. These will also be available from CANVAS.