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May 6, 2026
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Having a firm understanding of Fixed Income is essential for those preparing for the CFA® Level I exam as bonds are a highly popular investment. To excel in this subject area, CFA candidates need to acquaint themselves with fundamental principles and calculations.
It is easy to get bogged down by the calculations in Fixed Income, and while these are important, as demonstrated above there are many other components to this topic. A good strategy to use for gaining a firm grasp of Fixed Income is to complete the first two readings before you look at the calculations within ‘Introduction to Fixed Income Valuation’ and ‘Understanding Fixed Income Risk and Return’.
After covering the reading using the SchweserNotes and Module Videos, get into practice questions as early as possible so you can understand more about how this topic area is tested.
Learning Outcome Statements while studying for a CFA exam refer to specific skills and concepts you should possess within an exam topic whereas exam topics describe the broader body of knowledge you should have. For example, the Fixed Income exam topic at Level I has a few LOSs that you’ll need to learn.
An example of a CFA LOS for Fixed Income is “describe basic features of a fixed-income security
Investing in fixed income such as bonds is one of the largest investment types in most markets, making it crucial as a CFA candidate to understand:
the characteristics of different fixed income investments
how the markets operate
how to value current or potential fixed income interests in order to make suitable investment decisions
Also understanding how movements in interest rates impact the value of bonds (ie. analyzing and calculating their duration) is a common technique to familiarize yourself with.
The Fixed Income topic represents 11%-14% of the Level I exam, which is approximately 19-25 questions. This topic is tested in the afternoon session, within the Assets Functional Area, alongside Equities, Derivatives, and Alternative Investments.
It can take some time to understand the differences in rates such as the spot rates, forward rates and yields to maturity so ensure you focus on understanding the terminology in the first two readings before delving into the calculations.
While it is common to get bogged down in the numbers across Fixed Income (and the whole of CFA Level I to a certain extent) remember that these will only form a small portion of the questions on exam day. Pay attention to the LOS to understand what your aim is in each section.
Fixed Income is a standalone topic, so can be studied at any point. Some candidates like to study this alongside the topics it is tested with on exam day (Equities, Derivatives and Alternative Investments) to be able to understand the differences (and similarities) between the different assets. Make sure you study this after Quantitative Methods as the Time Value of Money techniques will be needed here.
Below are overviews of each Level I Fixed Income reading and what you are expected to learn.
The first two Fixed Income readings describe the features of a fixed income security, including the contents of a bond indenture and its covenants, as well as common cash flow structures and contingency provisions (embedded options) that a bond might feature.
Here we discuss the primary and secondary markets for bonds and the types of issuers and investors that participate in them, as well as the types of indexes used to gauge the performance of bond markets.
Corporations issue different types of fixed income securities to meet their short-term and long-term funding needs. This reading introduces short-term instruments such as repurchase agreements and contrasts the long-term funding strategies of investment-grade and high-yield bond issuers.
Government issuers include sovereign (national) governments, non-sovereign (municipal) governments, and quasi-government and supranational agencies. Here we examine the funding choices of each and contrast them with corporate issuers.
This is where we start calculating. Of the five TVM keys on your financial calculator (present value, future value, number of periods, interest rate per period, and payment per period), we can solve for any one of them given values for the other four. For the most part you will need to calculate a price given a yield, or a yield given a price. The key takeaway is that prices and yields are inversely related.
Up to this point the Fixed Income topic area has mainly dealt with bonds that have fixed coupon rates. Now it introduces bonds with floating rates and explains how those work. The main concepts to understand here are how to interpret the quoted margin and the discount margin. Also be prepared to calculate money market instrument yields on a discount basis (pay less than face value, receive face value at maturity) or on an add-on basis (pay face value, receive face value plus interest at maturity).
The key conceptual point to learn here is the meaning of a normal (upward-sloping) or inverted (downward-sloping) yield curve. The bulk of this reading, however, is devoted to calculating spot and forward interest rates that are consistent with each other. The best way to know what to do with one of these calculations is to draw a time line that includes the rates you are given, then use it to identify the missing component for which you need to solve.
These four readings introduce the concepts of duration, which measures the sensitivity of a bond’s price to changes in its yield; and convexity, which measures the extent to which this relationship is non-linear. Learn the different measures of duration, how to calculate them, and why only one of them (Macaulay duration) is stated in terms of time. Understand why greater convexity is good for bondholders: it makes the price decrease less in response to a yield increase, and increase more in response to a yield decrease.
This group of three readings describes how analysts evaluate the risk of default on a fixed income security. Key concepts include the meaning and limitations of credit ratings for investment-grade and high-yield bonds, and the differences between the credit risks of sovereign and non-sovereign government bonds.
These three readings introduce the concept of securitizing pools of financial assets and describe the major types of assets that back these securities. The main idea to grasp here is that in a pool of loans, we do not know which ones will prepay or default, but if the pool is large enough we can predict its overall behavior statistically. This enables us to price the securities issued from the pool.
For the Fixed Income CFA topic, the TI BAII Plus calculator has some really helpful functions:
Time Value of Money buttons (N, I/Y) etc which have been covered in Quantitative Methods and elsewhere);
Calculating duration (2nd 9); and
Pricing bonds with accrued interest (2nd 9).
Answer these five CFA practice questions to test your readiness for the Level I Exam.
Fixed Income is a similar portion of the Level I exam as the Level II exam. In Level II you’ll look in further detail at valuing bonds with embedded options, as well as building on other areas briefly mentioned at Level I such as Credit Default Swaps.
Start off by reading the Schweser CFA Level I SchweserNotes for Fixed Income, which also provides illustrative examples and Module Quizzes for you to test your understanding. Once you have covered the material, you should cover as many other questions as possible from our range of resources such as the Schweser CFA Level I QBank.
Looking for more guidance on how to prepare for Fixed Income? Enroll in one of our CFA Level I Premium study packages to receive expert instruction, CFA Program study materials, and more. Give yourself the best chance to prepare, practice, and perform on the CFA exam.
Written by Kaplan Schweser experts, reviewed by Craig Prochaska, CFA.
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