Bonds

Question 1

Clean price and dirty price

Answer 1

Clean price is the price without accumulated interest

Dirty price is clean price + accumulated interest

Accumulated interest is prior to settlement date from the last coupon date

Question 2

Relationship between price and yield

Answer 2

Both are inverse relation

Question 3

Relationship between yield to maturity and coupan rate

Answer 3

The bond sells at discount when YTM > coupon bond

Similarly others

Question 4

Different returns

Answer 4

Coupon interest payments
Any capital gains or losses
Reinvestment of interest payments

Question 5

Coupon yield

Answer 5

Coupon payment/ face value

Question 6

Current yield

Answer 6

Annual coupon / purchase price

Considers only coupons but not reinvestment

Question 7

Yield to Matuirty

Answer 7

Expected return on bond if held to maturity

It is the internal rate of return

Question 8

Day count conventions in India

Answer 8

Bond market 30/360 days irrespective of no of day in a month or year

Money market actual/365 days

Question 9

T bill yield calculation

Answer 9

(100-P)/P * 365/D *100

Question 10

Duration also called Macaulay duration

Answer 10

Time taken to recover the initial investment expressed in number of years