NYU Stern School of Business

Undergraduate College

FINC-UB.0026.001 (C15.0026): DEBT INSTRUMENTS

Spring 2012

Instructor Details

Smith, Josephine


Wednesdays from 3:00pm to 5:00pm

KMC 9-86


Doneci Kone


Mondays from 4:30pm to 5:30pm

KMC 2-70


Course Meetings

TR, 2:00pm to 3:15pm

Tisch T-LC21


Course Description and Learning Goals

This course describes important fixed income securities and markets and develops tools for valuing fixed income securities and managing interest rate risk.  The course covers traditional bonds and term structure concepts, as well as fixed income derivatives and financial engineering.


Course Pre-Requisites

Foundations of Financial Markets


Required Course Materials


Lecture notes and problem sets



P. Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley, 2010.
B. Tuckman, Fixed Income Securities, Wiley, 2002, 2nd ed.

Some info on the recommended textbooks: Both textbooks follow the outline of the course quite well.  The Veronesi text was written recently, hence it has some more up-to-date material on the development of fixed income markets, particularly related to the financial crisis.  The Tuckman text is a great reference, but is more dated yet analytical in nature.



You need a calculator for this class. It is a distinct advantage to have a financial calculator, but not an absolute requirement.  Hopefully, you have already purchased one for your other finance courses, and you will get good use out of a financial calculator. Standard financial calculators include the HP 12C, the HP 10B-II and the TI BA-II Plus. You are expected to learn how to operate the calculator on your own.  Do not purchase a programmable calculator for this class.  They will not be allowed during the exams.


Computer Software

Every student of Stern is expected to be comfortable with Excel tools. In particular, any Finance Area major is expected to have knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.


Course Outline

Tentative Outline of Lectures

The schedule below is meant to be a guideline of the topics covered in this course.  Changes may occur with notice from the professor.


Date of Lecture

Topics Covered

Tuesday, January 24

Course overview, coupon bonds, zero-coupon bonds

Thursday, January 26

Rate of return, zero rates

Tuesday, January 31

Yield to maturity

Thursday, February 2


Tuesday, February 7


Thursday, February 9


Tuesday, February 14

Forward contracts

Thursday, February 16

Forward rates

Tuesday, February 21

Floating rate notes

Thursday, February 23


Tuesday, February 28

Swap spreads, forward rate agreements

Thursday, March 1

Repurchase agreements

Tuesday, March 6


Thursday, March 8

No-arbitrage pricing

Tuesday, March 20

Risk-neutral probabilities

Thursday, March 22

Dynamic trading strategies

Tuesday, March 27

Financial engineering

Thursday, March 29

Hedging, options

Tuesday, April 3


Thursday, April 5

Floors, collars

Tuesday, April 10

Treasury bond futures

Thursday, April 12

Eurodollar futures

Tuesday, April 17

American options

Thursday, April 19

Callable bonds

Tuesday, April 24


Thursday, April 26

Mortgage market

Tuesday, May 1


Thursday, May 3


Tuesday, May 15

FINAL EXAM (from 2:00pm to 3:50pm)


Assessment Components

Final Exam (50%)

Midterm (40%)

Problem Sets (5%)

Class Participation (5%)




Closed note, closed book.  Please bring a calculator that is non-programmable.


You must take each of your exams as scheduled, or your grade for the exam will be zero.  There are two exceptions to this rule:


1. In case of a legitimate, foreseeable conflict, you must make a request in writing or by email at least one week prior to the scheduled exam date to take the exam at a different time, and this request must be approved by me in writing or by email prior to the scheduled exam date.

2. In case of an emergency, you must provide formal, written verification, such as a letter from a doctor.


Problem Sets


Because the material is technical and new concepts build on old ones, it will be essential to do the weekly problem sets in order to follow the lectures and succeed on the exams.  The majority of these problem sets will be done in Excel through Blackboard.  To facilitate learning, I encourage students to work together on these problem sets.  Groups of students working together should submit just one assignment.  All students in the same group will get the same grade.  Late assignments will not be accepted.





The study of fixed income securities is quantitative by nature, and this course will be taught very rigorously.  The course will require a consistent commitment of time, energy, and concentration, both inside and outside class, throughout the semester.



At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.



The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.


If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within two class days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.


If you do request to have a problem set or exam re-graded, I will re-grade it in its entirety.  Therefore, it is under your best interest to be sure you are willing to accept a lower grade if it is deemed necessary upon another review of the submission.


Professional Responsibilities For This Course




In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:




Classroom Norms


Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 


Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 


Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.


Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.


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