Bond

Bond

1. Bond yields

   • yield to maturity
     • is the market interest rate that is required in the market on a bond

2. Feature

   • Coupon payments
     • are the stated interest payments
     • constrand and payable every year or half-year
   • Face value (par value)
   • Coupon rate
   • Maturity

3. Values

   • bond at par
     • maket interest rate (YTM) = coupon rate
     • bond value= face value
       • bond price = par value
   • discount bond
     • market interest rate (YTM) > coupon rate
     • bond value < face value
       • bond price < par value
   • premium bond
     • market interest rate (YTM) < coupon rate
     • bond value > face value
       • bond price > par value

4. Interest rate risk

   • Interest rate risk is the risk that arises for bond holders from changes in interest rates
   • time to maturity
     • The longer the time to maturity, the greater the interest rate risk
   • coupon rate
     • The lower the coupon rate, the greater interest rate risk

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