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AN INTRODUCTION TO BOND MARKETS. Fourth Edition. The Chartered Institute for Securities & Investment. Mission Statement: To set standards of professional excellence and integrity for the investment and securities industry, providing qualifica tions and promoting the highest level of competence to our members, other individuals and firms.
A bond is a debt capital market instrument issued by a borrower, who is then required to repay to the lender/investor the amount borrowed plus interest, over a specified period of time. Usually, bonds are considered to be those debt securities with terms to maturity of over 1 year.
Foundations of Finance: Bonds and the Term Structure of Interest Rates 3 B. Yield to Maturity (YTM) Definition Yield to Maturity (YTM) is the constant interest rate (discount rate) that makes the present value of the bond’s cash flows equal to its price. YTM is sometimes referred to as the Internal Rate of Return (IRR). Example
Calculate various measures of bond yield. Read bond and stock quotations. Value a preference stock. Calculate the value of a stock using the dividend discount model and the P/E ratio approach. Show the relationship between E/P ratio, expected return, and growth.
VALUING BONDS The value of a bond is the present value of the expected cash flows on the bond, discounted at an interest rate that is appropriate to the riskiness of that bond. Since the cash flows on a straight bond are fixed at issue, the value of a bond is inversely related to the interest rate that investors demand for that bond.
There are three types of bond yields: current yield, yield to maturity, and in some cases, yield to call Current yield is the annual return on the dollar amount paid for the bond and is derived by dividing the bond’s interest payment by its price Yield to maturity is the total return received by holding the
1 Ιουν 2016 · The reading provides an economic analysis of simple risk-free bonds, including both zero-coupon and coupon bonds, and extends to bonds with credit risk. The material covers the relationships between prices, yields and maturity and introduces the concept of duration.
