Coupon

A Coupon is the periodic interest payment made to a bondholder during the life of the bond. (Usually semi-annual)

Discount

Discount refers to the price of a bond when it is below its par value. An example is if the par value of the bond is $1,000 and the bond is selling for $980, the bond is selling at a discount of ($1,000 – $980) =$20.

Duration

If you own a bond or manage a bond portfolio, chances are that will you be following daily interest rates. You know that bond prices increase when rates rise, and decrease when rates fall. But how do you measure the bond’s price sensitivity to such rate fluctuations? The answer is duration.

Fixed Income

Fixed income analysis is the process of evaluating and analyzing fixed income securities for investment purposes. Fixed Income represents a distinct asset class. Investors and analysts perform fixed-income analysis to Evaluate the risk characteristics underlying debt securities and to assess the capacity of the borrowing entity to meet its financial obligations (credit analysis) Identify which debt securities represent attractive investment opportunities Determine the appropriate valuation … Continue reading Fixed Income »

Yield To Maturity (YTM)

Yield To Maturity is the interest rate that will make the present value of a bond’s remaining cash flows (if held to maturity) equal to the price (plus accrued interest, if any). It is basically what you will earn if you buy and hold the bond till maturity. On of the major assumptions is that all the coupons are re-invested at the YTM.

Zero Coupon Bond

A zero coupon bond is a bond sold without interest-paying coupons. Instead of paying periodic interest, the bond is sold at a discount and pays its entire face amount upon maturity, which is usually a one year period or longer. A Treasury Bond is a good example.