O reinvestment rate risk uncertainty surrounding the

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Unformatted text preview: price. o Current yield - annual coupon divided by bond price. Yield to Call Realized Compound Return Vs Yield to Maturity – Reinvestment Rate o Realized compoud return - compound rate of return on a bond with all coupons reinvested until maturity. o Horizon analysis - analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and the reinvestment rate of coupons. o Reinvestment rate risk - uncertainty surrounding the cumulative future value of reinvested bond coupon payments. YTM vs Holding Period Period Return Zero Coupon Bonds and Treasury STRIPS Longer term zero coupon bonds are commonly created from coupon- bearing notes and bonds. The treasury program under which coupon stripping is performed is called STRIPS (Separate trading of registered interest and principal of securities) and these zero- coupon securities are called Treasury strips Interest Rate Risk - inverse relationship between bond prices and yeilds and that interest rates can fluctuate substantially. Risk and Bond Yield Determination Yield curve - a graph of yield to maturity as a function of term...
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