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 Pricing
  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

Bonds are debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. Certain bonds are risk-free (many are low-risk), and bonds generally offer predictable income and better returns than other short-term investments.

Here’s a quick review of what we discussed in this tutorial:

  • Bonds vary according to characteristics, including the type of issuer, priority, coupon rate and redemption features.
  • Bond prices can be either "dirty" or "clean," depending on when the last coupon payment was made and how much interest has accrued.
  • Yield measures the income you receive if you hold a bond until maturity.
  • Required yield is the minimum income a bond must offer in order to attract investors.
  • Current yield is the annual percentage return you get from your initial investment.
  • Yield to maturity is the interest rate you get if you invest all coupon payments at a constant interest rate until the bond matures.
  • The term structure of interest rates (yield curve) is helpful in determining the direction of market interest rates.
  • The yield curve demonstrates the concept of the credit spread between corporate and government bonds.
  • Duration is the time in years it takes a bond’s cash flows to repay you the total price of the bond.
  • A convex line is formed when the yield and price of a bond are graphed, and this line can show positive or negative convexity.
  • Bonds with greater convexity exhibit less volatility when there is a change in interest rates.

 

 

 

 

 


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