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10 Cards in this Set
 Front
 Back
Three source of return to coupon bond

Coupon interest payments
Reinvestment income from coupon capital gain or loss on principal value 

Yield to call (put)

1) calculate as YTM but with the number of periods until the call
2) call price substituted for the number of periods to maturity and maturity value 

Yield to worst

worst yield outcome of all possible given the call provision of the bond


Cash flow yield assumption

1) all cash flows discount at same rate
2) bond will held to maturity, with all coupons reinvested to maturity at a rate equal to YTM 3) all coupon payments will be made on time 

Bond equivalent yield

[(1+monthly CFY)^6  1] x 2 into bond equivalent form


Bond equivalent yield of annual pay bond

(1 + semiannual pay YTM/2)^2  1


3 commonly used yield spread

Nominal spread
zerovolatility spread option adjusted spread 

Nominal spread

bond YTM  Treasury YTM


option adjusted spread

measure when bond has embedded options
callable bond  must have higher yield than identical option free bond Option adjusted spread is higher because it embedded with extra risk 

Option cost in %

Zspread  OAS
Callable bond Zspread > OAS  option cost > 0 Putable bond Z spread < OAS  option cost < 0 