Chapter 7 Summary

Chapter 7 Summary - Almost all bond trading is OTC (over...

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Chapter 7.8: Summary and Conclusions Determining bond prices and yields is an application of basic discounted cash flow principles Bond values move in the direction opposite that of interest rates, leading to potential gains or losses for bond investors Bonds have a variety of features spelled out in a document called the indenture Bonds are rated based on their default risk. Some bonds, such as Treasury bonds, have no risk of default, whereas so called junk bonds have substantial default risk A wide variety of bonds exist, many of which contain exotic or unusual features
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Unformatted text preview: Almost all bond trading is OTC (over the counter), with little or no market transparency in many cases. As a result, bond price and volume information can be difficult to find for some types of bonds Bond yields and interest rates reflect the effect of six different things: the real interest rate and five premiums that investors demand compensation for inflation, interest rate risk, default risk, taxability, and lack of liquidity...
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This note was uploaded on 12/06/2011 for the course FIN 3134 taught by Professor Ddklock during the Fall '08 term at Virginia Tech.

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