Advanced Bond Concepts: Conclusion
AAA
  1. Advanced Bond Concepts: Introduction
  2. Advanced Bond Concepts: Bond Type Specifics
  3. Advanced Bond Concepts: Bond Pricing
  4. Advanced Bond Concepts: Yield and Bond Price
  5. Advanced Bond Concepts: Term Structure of Interest Rates
  6. Advanced Bond Concepts: Duration
  7. Advanced Bond Concepts: Convexity
  8. Advanced Bond Concepts: Formula Cheat Sheet
  9. Advanced Bond Concepts: Conclusion

Advanced Bond Concepts: Conclusion

You have now learned some of the more advanced topics associated with bonds. Let's run through a quick recap of what we discussed in this tutorial:

  • Bonds vary according to characteristics such as the type of issuer, priority, coupon rate, and redemption features.
  • Bond prices may be either dirty or clean, depending on when the last coupon payment was made and how much interest has been accrued.
  • Yield is a measure of the income an investor receives if he or she holds a bond until maturity; required yield is the minimum income a bond must offer in order to attract investors.
  • Current yield is a basic calculation of the annual percentage return an investor receives from his or her initial investment.
  • Yield to maturity is the resulting interest rate an investor receives if he or she invests all coupon payments at a constant interest rate until the bond matures.
  • The term structure of interest rates, or yield curve, is useful in determining the direction of market interest rates.
  • The yield curve demonstrates the concept of the credit spread between corporate and government fixed income securities.
  • Duration is the time in years it takes a bond's cash flows to repay the investor the total price of the bond.
  • A convex line is formed when the yield and price of a bond is graphed, and this line can exhibit positive or negative convexity.
  • If we draw a line tangent to the convex price-yield curve, we draw a line that is equal to duration. The relationship between the linear duration line and the convex price-yield curve allows us to determine the accuracy associated with using modified duration.
  • Bonds with greater convexity exhibit less volatility when there is a change in interest rates.

  1. Advanced Bond Concepts: Introduction
  2. Advanced Bond Concepts: Bond Type Specifics
  3. Advanced Bond Concepts: Bond Pricing
  4. Advanced Bond Concepts: Yield and Bond Price
  5. Advanced Bond Concepts: Term Structure of Interest Rates
  6. Advanced Bond Concepts: Duration
  7. Advanced Bond Concepts: Convexity
  8. Advanced Bond Concepts: Formula Cheat Sheet
  9. Advanced Bond Concepts: Conclusion
Related Tutorials
  1. Fundamental Analysis

    Ethical Investing Tutorial

  2. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  3. Economics

    Macroeconomics

  4. Investing Basics

    Capital Budgeting

  5. Bonds & Fixed Income

    Certificates Of Deposit

RELATED TERMS
  1. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  2. Financial Singlularity

    A financial singularity is the point at which investment decisions ...
  3. Revenue-based Financing

    Revenue-based financing, also known as royalty based financing, ...
  4. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
  5. Bjerksund-Stensland Model

    A closed-form option pricing model used to calculate the price ...
  6. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
  1. What is the relationship between the current yield and risk?

    Discover the relationship between a bond’s current yield and risk, and how investors can use it to benefit their overall ...
  2. What is the utility function and how is it calculated?

    Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ...
  3. How does the bond market react to changes in the Federal Funds Rate?

    Discover how the bond market reacts to changes in the federal funds rate. The risk-free rate of return is a major factor ...
  4. How do I use the holding period return yield to evaluate my bond portfolio?

    Find out how to use the holding period return yield formula to evaluate the performance of bonds in your portfolio, and view ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!