AG937 Lecture Notes on Fixed-Income Securities

Flashcards summarizing key concepts in fixed-income securities and related financial principles.

Fixed-Income Securities

Financial instruments that promise fixed income streams over a specified period.

Perpetual Annuity

An annuity that pays a constant amount per period indefinitely.

Present Value

The current worth of a stream of cash flows discounted at a specified interest rate.

Yield to Maturity (YTM)

The internal rate of return on a bond, reflecting the total return if the bond is held to maturity.

Duration

A measure of the sensitivity of the price of a bond to changes in interest rates.

Coupon Payment

Periodic interest payments made by the issuer of a bond to bondholders.

Bond Pricing Formula

Mathematical equation used to determine the price of a bond based on its cash flows.

Discount Bond

A bond that is sold for less than its face value and pays a single cash flow at maturity.

STRIPS

Separate Trading of Registered Interest and Principal Securities, which allows for the trading of bond components.

Annuity Amortization Formula

The formula used to calculate the periodic payment required to amortize a loan.

Bond Default Risk

The risk that a bond issuer will fail to make required payments.

Gordon Formula

A model for calculating the present value of a firm based on its growth and dividend output.