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Fixed IncomeModule 3 of 5

Fixed-Income Bond Valuation

4

Concepts

4

Formulas

1

Decisions

3

Quiz Questions

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Key Concepts

4 concepts covered in this module.

Bond Pricing

PV of future cash flows discounted at YTM. Premium: coupon > YTM. Discount: coupon < YTM. Par: coupon = YTM.

Spot Rates

Yields on zero-coupon bonds. Used to discount each cash flow at the appropriate maturity rate.

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Formulas

4 essential formulas for this module.

Bond Price (YTM)

P = Σ C/(1+y)t + FV/(1+y)n

Where: y = YTM per period

Bond Price (Spot Rates)

P = C/(1+S1) + C/(1+S2)² + ... + (C+FV)/(1+Sn)n

Where: St = spot rate for maturity t

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Decision Frameworks

1 decision frameworks to guide your analysis.

When does a bond trade at premium/discount?

  • Premium: coupon rate > market yield (investors pay extra for higher coupons)
  • Discount: coupon rate < market yield
  • Par: coupon rate = market yield

Mind Map

Visual overview of how concepts connect in this module.

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Flashcard

Bond Pricing

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Answer
PV of future cash flows discounted at YTM. Premium: coupon > YTM. Discount: coupon < YTM. Par: coupon = YTM.
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Fixed-Income Cash Flows and Types

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Interest Rate Risk and Duration