Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time. This is seen as a loan from the bond holder to the corporation. The value of Bonds traded are greater than the value of stocks traded.
A Coupon is the periodic interest payment made to a bondholder during the life of the bond. (Usually semi-annual)
Coupon Rate is the rate of interest paid on a bond, expressed as a percentage of the bond’s face value.
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.
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 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
Since the bottom fell out of the stock market in 2008, investors have been shifting money from stocks into bond funds. Since 2007, there have been $1.39 trillion invested in Bond Funds versus $193 billion in stock funds. The most logical explanation is an attempt to find income and safety, but are bonds truly safe?
A high-risk bond with a low credit rating. Junk Bonds usually have a much higher yield than investment-grade bonds.
Par Value is the amount that the issuer of a bond agrees to pay at the date of maturity.
Stock and bond prices move up and down every day, sometimes by very large amounts. If you want to start investing, the first thing to understand is why these price movements happen, and how to plan for them. Stock Price Movements If you look at the stock for any public company you will often see a line graph that depicts how prices change every day. … Continue reading Why Stock and Bond Prices Move
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.
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.