Sign up  |  Log in

Study Session 16: Fixed Income: Analysis of Risk

Carrying Value of Bonds

In reading #55 we are calculating carrying value of a bond.

I understand we are taking the future value of the bond at a future year, while adding the coupon/reinvestment income.

Example:

6% coupon, 3 year annual pay bond, bond purchased with YTM of 5, sold at end of year 2 with YTM of 5

Price at sale (at end of year 2, YTM = 5%)

N = 1, IY = 5, FV = 1000, PMT = 60, CPT PV = -1009.52

verify the calculation of periodicity

Hello everyone, 

I would like to confirm the proper computation for periodicity. Upon doing some exercises, I just realized it is through algebra to get the value of APR in the formula of periodicity. I’ve been doing it through calculator by replacing the periods, but I didn’t get the exact answer. How do you do this periodicity? 

Thank you so much! 

fixed income: yield measures for money market instruments

Hello there, 

I am wondering if the formula to get the present value for discount rates and add-on rates basis must be strictly followed and not opt to calculate the present value straight on the financial calculator. 

I hope someone would respond here. 

Thanks! 

Fixed Income Risk and Return

Hi All,

I’m confused while reading study session 16 page no. 106. While calculating the PV for a bond sold prior to maturity.

For e.g YTM=7%,N=3(held to maturity),Coupon rate=6%(annual), FV=1000, PV comes up to be=973.76

and when the same bond is having 2yr holding period instead of using N=2 they have done the calcualtion using N=1sad

Can some one help me with this.

Thanx

Duration w/ Convexity Adjustment

Schweser notes use (.5 x C x YTM^2) for the convexity adjustment. I noticed that on a sample test and on investopedia the convexity adjustment is listed as (C x YTM^2).  Which way is correct, 1/2xC or just C? Or do they apply to different scenarios?

Bond convexity.

To calculate the return impact of a change in yield spread, why is convexity taken as 1/2?

Macaulay duration

For a discount bond, duration first increases with longer maturity and then decreases over a range of relatively long maturities until it approacehs the duration of a perpetuity, which is (1+YTM) / YTM.

Can somebody please explain to me what that means exaclty? 

Understanding fixed-income risk and return

So in this chapter it says that, an investor who holds a fixed rate bond to maturity will earn  an annualized rate of return equal to the YTM of the bond when purchased. And this also has coupon payments reinvested. So my question is that, WHY do the coupon payments need to be reinvested for the bond return at maturity be equal to the YTM?

Flat yield curve

What does a flat yield curve mean? Does it mean it has a modified duration of zero?