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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
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