Fundamentals of Credit Analysis for the CFA Level 1 Exam

Welcome to the fascinating world of credit analysis! In this article, we’ll explore the building blocks of credit risk assessment and gain insights into the factors that influence creditworthiness. Ready to embark on a journey to credit enlightenment? Let’s dive in!

Sources of Credit Risk

We’re talking credit analysis, and more specifically, corporate bonds in this lesson. You’ll grasp the essence of credit risk, breaking it down into default risk and loss severity, and comprehend their impact on expected loss and recovery rate. You’ll also touch on yield spreads and how they indicate creditworthiness, and finally, learn about credit migration risk, market liquidity risk, and spread risk.

► Don your financial detective hat, and start your intriguing journey into credit analysis here.

Credit Ratings and Ratings Agencies

We’re tackling credit ratings in this lesson, explaining the role of credit rating agencies and how they grade issuers and individual debt issues. You’ll get a glimpse into the concept of ‘notching’ and its interplay with structural subordination. Plus, the lesson unveils the potential pitfalls of relying too heavily on credit ratings, discussing risks like rating changes, latency, unpredictable events, and rating agency errors.

► Keen to dissect the world of credit ratings? Dive in here.

Credit Yields and Spreads

Ever wondered what the “spread” is in bond spreads? Well, wonder no more! This lesson pulls back the curtain on credit yields and spreads, highlighting the key factors that impact them. Plus, we’ll show you how to calculate bond price changes based on spread changes. It’s like a backstage pass to the world of corporate debt!

► Got your backstage pass ready? Dive into the world of credit yields and spreads here.