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.
The principal-agent problem develops when a principal creates ...
A financial instrument that represents an ownership position ...
A bond that is issued for less than its par (or face) value, ...
An assessment of the credit worthiness of a borrower in general ...
A metric used in capital budgeting measuring the profitability ...
Long-term debt consists of loans and financial obligations lasting ...
The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
The holding period return yield formula can be used to compare the yields of different bonds in your portfolio over a given ... Read Full Answer >>
Both the current yield and yield to maturity (YTM) formulas are methods of calculating the yield of a bond. However, these ... Read Full Answer >>