11-Bonds - Class Business Current Events Upcoming Homework...

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Class Business Current Events Upcoming Homework Bonds Many different types of bonds or fixed-income securities – Discount or zero-coupon – Coupon – Consol – Fixed-Payment We know how to calculate bond prices given an interest rate. – Just discount back all future cash flows We also know how to go in the other direction. – Calculate the return to an investment, implicit in the bond’s price. – Calculate the Yield-to-Maturity – A measure of the cost of borrowing and the reward for lending. – We will use the terms yield and interest rate interchangeably. One of the characteristics we like about yield is that is provides an estimate of the expected return on a bond.
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Bond Prices and Yield to Maturity Bond prices and yields are inversely related When a bond is prices at par, its yield equals the coupon rate – Yield greater (less) than coupon rate when bond price is below (above) par value Prices move by more on bonds with longer maturities when
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11-Bonds - Class Business Current Events Upcoming Homework...

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