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11 Cards in this Set
- Front
- Back
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Interest rate risk (duration)
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Inverse relation with bond price
Longer maturity - Higher duration Higher coupon - Lower duration Add Call/Put - Lower duration Longer the reset period - Greater the interest rate risk |
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Callable bond value
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Value of option free bond - value of embedded call option
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Duration
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Price sensitivity of a security to change in yield
% change in bond price / yield change in price |
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Callable or prepayable security
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dis for buyer - uncertainty about timing of cash flows
Interest rate decrease - rebuy bonds Call when bond price is high |
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Reinvestment risk
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coupon
call feature amortizing securities prepayment option |
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Bond's rating
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probability of default
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Credit spread
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Yield on treasury security (Risk free) - Yield on similiar maturity bond with lower credit rating
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Credit spread risk
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Default risk premium
Increase in credit spread -> increase required yield -> decrease price of bond |
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Yield curve risk
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Risk that changes in the shape of the yield curve will reduce bond values
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Liquidity risk
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Risk that immediate sale will result in a value lower than fair value
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Event risk
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risk of decrease in security value from disasters, corporate restructuring
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