Chapter 10: Bond Prices and Yields

These flashcards cover key vocabulary and concepts related to bond prices and yields, which are essential for understanding the material presented in Chapter 10.

Bond Price

The present value of a bond's future cash flows, including its coupon payments and face value.

C YTM

The formula component that represents annual coupon payments divided by the yield to maturity.

Yield to Maturity (YTM)

The total return anticipated on a bond if held until it matures.

Coupon Rate

The annual interest rate paid by the bond issuer to the bondholders.

Accrued Interest

The interest that accumulates between coupon payments for a bond.

Callable Bond

A bond that allows the issuer to redeem it before its maturity at a specified call price.

Yield to Call (YTC)

The yield measurement which assumes a bond will be called at its earliest call date.

Macaulay Duration

A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years.

Modified Duration

A variation of Macaulay Duration that measures the percentage change in bond price for a 1% change in yield.

Price Risk

The risk that bond prices will decrease due to rising interest rates.

Interest Rate Risk

The risk that changes in interest rates will affect the value of a bond.

Premium Bond

A bond that sells for more than its face value when its coupon rate is higher than the prevailing interest rates.

Discount Bond

A bond that sells for less than its face value when its coupon rate is lower than the prevailing interest rates.

Par Bond

A bond that sells for its face value when the coupon rate equals the yield to maturity.

Current Yield

The annual coupon payment divided by the bond’s current market price.

Clean Price

The quoted price of a bond that excludes accrued interest.

Dirty Price

The actual price paid for a bond that includes accrued interest.