Lesson 1257 of 1524
Bonds and Bond Valuation
When interest rate yields are plotted against their respective maturity periods and these plotted points are connected, the resulting line is called the yield curve.
Practice this chapterWhen interest rate yields are plotted against their respective maturity periods and these plotted points are connected, the resulting line is called the yield curve. There are three primary categories of bonds: government bonds, corporate bonds, and convertible bonds.
It is important to ascertain what a given bond is worth to a willing buyer and a willing seller. The essential steps are (1) identify the amount and timing of the future cash flow; (2) determine the discount rate; (3) find the present values of the lump sum principal and the annuity stream of coupons; and (4) add…
convertible bonds — fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares. yield curve — a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates; gives an idea of future interest rate changes and economic activity. essential steps — (1) identify the amount and timing of the future cash flow; (2) determine the discount rate; (3) find the present values of the lump sum principal and the annuity stream. given bond — worth to a willing buyer and a willing seller.
Worked example
What does “convertible bonds” mean in Bonds and Bond Valuation?
- 1Use the wording this chapter gives for convertible bonds.
- 2The book says: fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares.
- 3Do not use the meaning of yield curve. That term means a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates; gives an idea of future interest rate changes and economic activity.
Result: fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares
Why. That is the meaning this chapter gives for convertible bonds.
Do not swap convertible bonds and yield curve. convertible bonds means fixed-income corporate debt securities that yield interest payments but can be converted into a predetermined number of common stock or equity shares. yield curve means a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates; gives an idea of future interest rate changes and economic activity.
Practice margin
This chapter
A fresh set from this chapter only. Choose 10 or 20. Multiple choice and fill-in, with no repeat inside the set.