Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
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
zero-volatility 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 %
|
Z-spread - OAS
Callable bond Z-spread > OAS - option cost > 0 Putable bond Z- spread < OAS - option cost < 0 |
