Topical review
- Always assume bonds pay coupons semi-annually, unless stated otherwise
- Illustrate the cash flows of a bond
- Price a bond, given a yield to maturity (interest rate) or find a yield, given the price (need financial calculator to solve)
- Interpret yield to maturity and its assumptions - set up equation to determine YTM
- Draw the shape of a price-yield curve for callable bonds and non-callable bonds
- Distinguish between bonds that sell at a discount, at par, and at a premium
- Explain the sensitivity of interest rates on bond prices - the effect of maturity (interest rate risk)
- Discuss the call provision of bonds and the advantages/disadvantages to issuer/investor
- Set up the equation to determine yield-to-call
- Show how returns on bonds (returns from coupon income and capital gains) equal YTM in the short term
- Discuss the tradeoff between interest rate risk and reinvestment risk for bonds of different maturities
- Explain the impact of default risk on required interest rates
- Identify the use of bond ratings and their relationship to yields to maturity
- Explain differences in nominal interest rates - risk-free rate plus risk premia (r*, IP, DRP, LRP, MP)
- Bond features: maturity, face value, coupon rate, sinking fund, callable bond, convertible bond, bond rating, reinvestment risk, interest rate risk
- Bond types: Treasury bonds, municipal bonds, corporate bonds, floating rate bonds, zero coupon bonds, premium bond, discount bond, investment grade, junk bond
- Bond valuation: yield-to-maturity, yield-to-call, current yield, price-yield curve, real rate of interest, inflation premium, default risk premium, liquidity risk premium, maturity premium, yield curve/term structure of interest rates
# 7, 8, 16
No comments:
Post a Comment