Fundamentals of Investments

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Fundamentals of Investments 10 C h a p t e r Bond prices and yields Fundamentals of Investments Valuation & Management second edition Charles J. Corrado Bradford D. Jordan McGraw Hill / Irwin Slides by Yee-Tien (Ted) Fu

Bond prices and yields *Our goal in this chapter is to discuss bond prices and yields in some detail. first, how bond yields are determind and how they are interpreted. *2nd, Examine what happens to bond prices as a yield change. *3rd Examine some of the fundamental tools of bond risk analysis used by fixed income portfolio managers. Goal

Bond prices and yields Coupon rate: a bond's annual coupon divided by its par value . current yield: a bond's annual coupon divided by its market price . yield to maturity: the discount rate that equates a bond's price with the present value of its future cash flows . clean price: the price of a bond net of accrued interest; this is the price that is typically quoted

Bond prices and yields Dirty price: the price of a bond including accrued interest, also known as the full or invoice price . This is the price the buyer actually pays.