FREEMAN SCHOOL OF BUSINESS
FINE 4120-03
Analysis of Fixed Income Securities
Fall 2015
Instructor: Katie Moon
Office Phone: 504-314-7560
Office: GW1 - Room 400C
E-mail: smoon1@tulane.edu
Office Hours: Tuesday/Thursday 2:00pm3:00pm, or by appointment
Blackboard Site: myTulane.blackboard.com
Class Location: GWI, Room 151
Class Meeting Day & Time: Tuesday/Thursday
12:30pm-1:45pm
Course Description:
This course deals with the analysis of fixed income securities. Topics include valuation of different bond
types, calculation of yield to maturity and total returns, accrued interest, day-counting rules, measurement
of interest rate risk (duration and convexity), term structure of interest rates, money markets, mortgages
and the concept of pass-through securities, and management of interest rate risk through fixed income
derivatives. Theoretical aspects and applications of theory are both presented. Spreadsheet modeling in
the above areas may be introduced.
Course Prerequisites:
FINE 3010 and INFO 3010
Course Goals
This course is designed to provide students the skills necessary to analyze fixed income securities. A
thorough understanding of this material is needed to effectively manage and/or evaluate a fixed income
portfolio. We will discuss the pricing of various types of fixed income securities and the measurement of
their yields and returns. We will discuss measures of interest rate risk such as bond duration and
convexity and their applications. We will discuss the term structure of interest rates, its underlying
theories, fitting yield curves, and deriving implied forward rates. We will also discuss the process of
issuance of Treasury securities, money market and bond market conventions, accrued interest and daycounting conventions, and the process of stripping Treasury securities. We will discuss mortgages, the
amortization process of mortgages, and the market for mortgage pass-through securities. Finally, we will
discuss the management of interest risk through techniques like net worth immunization and interest rate
derivative instruments such as futures and swaps.
Student Learning Objectives
At the end of the course students should be able to analyze and value fixed income securities and
understand interest rate risk of bonds, the term structure of interest rates and its theories, money market
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and bond market conventions, the process behind issuance of Treasury securities, amortization of
mortgages and mortgage pass-through securities, and techniques of risk management for a portfolio of
fixed income instruments.
Quantitative tools are especially important for understanding fixed-income securities: their cash flows are
contractually specified which makes it relatively easy to quantify the payoffs, yet the subtleties of interest
rate movements and credit risk add challenges to fixed income analysis. We will focus primarily on the
fundamental concepts underlying fixed income markets. With a solid grasp of the underlying theory, it
should be much easier to pick up the rest while working in the industry. The course will be fairly
quantitative in nature.
Course Material
 Textbook: Bond Markets, Analysis, and Strategies, 8th edition, by Frank Fabozzi, Prentice Hall
 Course Lecture Slides: Throughout the course, I will be using extensive slides for covering the
course material. The slides will be posted on the course page at http://mytulane.blackboard.com
on a regular basis. The slides synthesize the textbook material and additionally contain problems
we will cover in class. It is recommended that you print a paper copy of the slides before each
class for cross-reference during class, for study, and for taking notes.  Calculator: It is necessary that you have a financial calculator to use throughout this course. If
you do not have one, I recommend the Texas Instruments BA II Plus ($35) financial calculator. It
is user friendly and is relatively inexpensive. Bring your calculator to class. Communication
There will be times during the term that I will want to communicate with you either individually or as a
class. I will normally do this via email. I will be using the list of e-mail addresses as indicted on the
Blackboard class roster. You are responsible for checking your Tulane e-mail accounts daily when classes
are in session. If you use another email address such as a Gmail, Yahoo, or work account for your primary
email, you will need to forward your emails from the Tulane official address to your main address.
Office Hours
I will have office hours on Tuesdays and Thursdays from 2:00 pm to 3:00 pm. The fixed office hours may
be inconvenient to some of you given your prior commitments. Please keep in mind that I am willing to
provide all reasonable help so that you can succeed in the course. If you would like to meet me outside of
office hours, please email me to setup a mutually convenient time.
Course Structure
The course primarily consists of lectures. The course will cover several chapters from the textbook –
some in their entirety and others only partially. Lectures will be based on the course slides (which reflect
textbook material) and possibly the additional readings which may be assigned throughout the course.
Student participation in the classroom is encouraged.
Grading
Your final grade for the course will be determined according to the following grade weight schedule:
Exam1
Exam2
Final Exam
Quizzes
Homework & Attendance
2
25%
25%
25%
10%
15%
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Exam 1 & 2: Each exam will be held during regular class hours, the tentative dates for which
have been provided in the course outline section of the syllabus. Chapter coverage for each exam
will be announced in the class. Both exams will be in-class and closed book exams. If necessary,
in case of complicated calculations, formulas will be provided on the exam at my own discretion.
You will need to bring a calculator to all exams. Exams will consist of a combination of multiple
choice questions, problems and discussion questions. Exams will cover all assigned readings and
problems as well as material covered and discussed in class. The multiple-choice questions may
be conceptual or problem-solving from the assigned textbook chapters for reading. Problems will
be based on example problems during the lecture and practice problem sets in homework
assignments. All work must be shown for any credit. Attendance in both exams is mandatory to
be able to take final exam. Only under special circumstances, make-up will be provided after
supporting documentation (e.g., medical statement) is provided.
Final Exam: The final exam will be held on the date and time as scheduled by the University.
This will be a closed book exam with no cheat sheets/formula sheets allowed. If necessary, in
case of complicated calculations, formulas will be provided on the exam at my own discretion.
You will need to bring a calculator to the final exam. Attendance in final exam is mandatory.
Only under special circumstances, make-up will be provided after supporting documentation (e.g.
medical statement) are provided. Further, each one of you will be eligible for only one make up
exam during entire semester (including Exams 1 and 2 and the final exam).
Quizzes: During regular class hours, three in-class closed book quizzes will be handed out at the
beginning of the class. The quizzes will be closed book format with no cheat sheets/formula
sheets allowed. The tentative quiz dates have been provided in the course outline section of the
syllabus. Attendance in two of the three quizzes is mandatory. If you attend three quizzes, the
best two scores of the three will be counted. You will need to bring a calculator to all quizzes.
 If there are any questions regarding my grading on quizzes or exams, you should let me know
within 2 business days after answer sheets are returned.
 Extra Credit: There may be some bonus question(s) provided on the exams. If you satisfactorily
answer these questions, points will be added to the respective exam score. This would count as
extra credit.
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Homework: Homework will account for 15% of the course grade. Three practice problem sets
will be handed out as assignments during the semester. These assignments will be due at the
beginning of the class on the date mentioned on each assignment. The assignments will be graded
largely based on effort. I will provide solutions to the problem sets at the end of the class on the
due date. You must turn in the completed assignments on time to get the 5% of your grade for
each assignment.
Class Attendance: Students are expected to attend all scheduled class meetings for the entire
duration of the class. You will be responsible for anything covered in class, even if you are not in
attendance that day. In case of absence, it is the students’ responsibility to find out the portion
missed in class. To keep track of attendance, I will pass out an attendance sheet at the beginning
of class. It is your responsibility to sign the attendance sheet. Part of your 15% Homework grade
will be reduced by your missed attendance to classes.
Statement about Academic Integrity
This class will be conducted in full accordance with Tulane’s policies about academic integrity including,
but not limited to, the Code of Academic Integrity and the Code of Student Conduct. These can be found
at: http://tulane.edu/college/code.cfm and http://tulane.edu/studentaffairs/upload/02Academic.pdf
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Freeman Educational Norms and Expectations
This class will be conducted in full accordance with Freeman’s Educational Norms and Expectations.
Please reread the Norms and Expectations, which can be found at
http://www.freeman.tulane.edu/students/bsm/pdf/Expected%20Behavioral%20Norms.pdf
Learning Disabilities
Under the Americans with Disability Act and the Section 504 of the Rehabilitation Act, if you have a
disability, you may have the right to an accommodation; however, the right is contingent upon you taking
certain steps. You should review the steps that you need to take, as well as Tulane’s policy concerning
accommodations at http://tulane.edu/studentaffairs/disability/accommodations.cfm
Any student with a disability, in need of course or examination accommodation, should request an
accommodation through the University’s Office of Disability Services (ODS) located in the Mechanical
Engineering Building. At the beginning of the semester, please provide me with a copy of your approved
ODS accommodation form. I am committed to working with ODS to ensure that I provide you with all
approved accommodations. If you do not deliver the approved accommodation form to me, I will not
know that ODS approved your accommodation and I will have no basis to provide those
accommodations.
For students with extended time accommodation, they are to take exams at the Freeman School. Please
take your exam request form directly, at least four business days in advance, to Phylicia Richardson in
Suite 200. Once Ms. Richardson receives your request form she will schedule your exam. You must begin
your exam when the class normally would begin. For all other accommodations, please take your form to
ODS and they will schedule your exam.
Specific Course Policies
Usage of Laptops and Cell Phones: Please silence and put away all cell phones and communication
devices during class. They are not to be out on your desk for any reason (including their use as a
calculator – bring a real calculator to class). Naturally, in the case of an emergency, you may leave the
class to take calls, emails, etc. If you anticipate an emergency situation in which you need to have access
to your cell phone, let me know about it BEFORE class begins. Laptops are not permitted unless I
indicate they will be used in class.
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Course Outline for FINE-4120 (Fall 2015)
*This is a tentative course outline. There may be changes as we progress through the semester. Changes
to the outline will be announced in class.
Class
Date
Topic
Chapters
Event
1
Tuesday, Aug 25
Syllabus & Self-test
2
Thursday, Aug 27
Introduction to Fixed Income Securities
1
3
Tuesday, Sep 1
Pricing of bonds
2
4
Thursday, Sep 3
Pricing of bonds
2
Monday, Sep 7
Labor Day
5
Tuesday, Sep 8
Measuring yields and total returns
3
6
Thursday, Sep 10
Measuring yields and total returns
3
7
Tuesday, Sep 15
Duration and Convexity
4
8
Thursday, Sep 17
Duration and Convexity
4
9
Tuesday, Sep 22
Term structure of interest rates
Wednesday, Sep 23
Yom Kippur
10
Thursday, Sep 24
Term structure of interest rates
11
Tuesday, Sep 29
Review for Exam 1
5
HW 1
12
Thursday, Oct 1
Exam 1
5
Exam 1
*Saturday, Oct 3
Possible Hurricane Make-Up Date
13
Tuesday, Oct 6
Term structure of interest rates
5
14
Thursday, Oct 8
Treasuries / Municipal securities
6&8
15
Corporate debt instruments
7
16
Tuesday, Oct 13
Thursday, Oct 15 –
Sunday, Oct 18
Tuesday, Oct 20
Mortgage-backed securities
10 - 14
17
Thursday, Oct 22
Asset-backed securities / Collateralized debt obligations
15
Quiz 1
Quiz 2
Fall Break
*Saturday, Oct 24
Possible Hurricane Make-Up Date
18
Tuesday, Oct 27
Embedded options
17
19
Thursday, Oct 29
Convertible bonds
19
20
Tuesday, Nov 3
Review for Exam 2
HW 2
21
Thursday, Nov 5
Exam 2
Exam 2
22
Tuesday, Nov 10
Bond portfolio management
22 - 25
23
Thursday, Nov 12
Bond portfolio management
22 - 25
24
Tuesday, Nov 17
Interest-rate futures
26
25
Thursday, Nov 19
Interest-rate options
27
26
Interest-rate swaps
28
27
Tuesday, Nov 24
Wednesday, Nov 25
- Sunday, Nov 29
Tuesday, Dec 1
28
Thursday, Dec 3
Review for Final Exam
Friday, Dec 4
Last Day of Class
Tuesday, Dec 15 (8am-Noon)
Final Exam (per Tulane University schedule)
Quiz 3
Thanksgiving Holiday
Credit default swaps
5
29
HW 3
Final
Expected Behavior at Tulane University
Tulane University expects and requires behavior compatible with its high standards of scholarship. By
accepting admission to the university, a student accepts its regulations (i.e., Honor Code, Code of Student
Conduct) and acknowledges the right of the university to take disciplinary action, including suspension or
expulsion, for conduct judged unsatisfactory or disruptive.
The integrity of Tulane University is based on the absolute honesty of the entire community in all
academic endeavors. As part of the community, students have certain responsibilities regarding all
independent work that forms the basis for the evaluation of their academic achievement. Students are
expected to be familiar with these responsibilities at all times.
The scholarly community of the university depends on the willingness of both instructors and students to
uphold the Honor Code. When a violation of the Honor Code is suspected, it is the duty of every member
of the academic community who has evidence to take action. Students should take steps to uphold the
Honor Code by reporting any suspected offense to the instructor or the Honor Board. Students should
under no circumstances tolerate any form of academic dishonesty.
In all work submitted for academic credit, students are expected to represent themselves honestly. The
presence of students’ names on any work submitted in completion of an academic assignment is
considered to be an assurance that the work and ideas are the result of the students’ own intellectual
effort, stated in the students’ own words, and produced independently, unless clear and explicit
acknowledgement of the sources for the work and ideas is included. This principle applies to papers, tests,
homework assignments, artistic productions, laboratory reports, computer programs, and other
assignments. A copy of the complete Honor Code may be obtained from the Newcomb-Tulane College
dean’s office.
Behavior Norms
Listed below are generally accepted guidelines for student behavior in classrooms, laboratories and
studios. Instructors may impose other expectations.
 Computers are to be used for class-related purposes only; instructors will specify when
computers may not be used.  Students and instructors will turn off all cell phones and electronic devices at the beginning of
each class; these items will remain off for the duration of the class.  Students and instructors are expected to observe copyright laws.  Students are responsible for checking their Tulane e-mail accounts daily when classes are in
session.  Instructors expect students to be punctual when arriving for classes and presentations; they also
expect uninterrupted attendance for the duration of the class. Student that either arrive late or
leave before the end of class may not receive credit for attending class on that date.  Students submitting work late can expect, at the instructor’s discretion, to have the work refused
or to receive a grade penalty.  Videotaping or recording a class requires the instructor’s approval in advance.  Food may not be allowed in some classrooms, and is not allowed in the classroom during class
time; any drink brought to class must be in a container with a lid.  Grades and other class-related matters should be discussed with the instructor before bringing
the matter to the attention of the associate dean. This should be done during office hours or by
appointment.  Students are required to display their name plates during class.  Non-emergency reasons for missing final exams must be approved by your instructor during the
first week of class. 6
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Students are expected to dress in a manner that is consistent with a professional educational
environment. Discuss grades and other class-related matters with your instructor either during office hours
or by appointment. Please first approach your instructor(s) before bringing any matter to the
attention of the associate dean. Students are expected to not engage in disruptive behavior and to wear appropriate business attire
to all Freeman events. Students should not consume alcohol prior to or during any graduation event. If a student
engages in disruptive behavior, the student will be removed from the commencement activity.
Students are expected to return to their seats after the onstage presentation and remain seated for
the duration of the graduation ceremony. 7