Ch5 Fixed Income Flashcards
(12 cards)
What is a bond?
A debt instrument where the issuer promises to pay fixed or floating interest payments and repay principal at maturity.
What are the key features of a bond?
Nominal value, coupon rate, maturity, payment frequency, and credit rating.
What are the types of bonds?
Real bonds, green bonds, callable, putable, convertible, catastrophe bonds, reverse floaters, rate-sensitive bonds.
What is a Credit Default Swap (CDS)?
A financial contract that provides insurance against the default of a company.
What is a Collateralized Debt Obligation (CDO)?
A structured financial product backed by a pool of loans or bonds, divided into tranches.
What is a zero-coupon bond?
A bond that pays no coupons and is sold at a discount; repays full face value at maturity.
What is the yield-to-maturity (YTM)?
The internal rate of return that equates a bond’s price with the present value of its cash flows.
What is the difference between clean and dirty bond prices?
Clean price excludes accrued interest; dirty price includes it.
What is duration in bonds?
A measure of interest-rate risk; includes Macaulay, modified, and dollar duration.
What is bond immunization?
A strategy to offset price and reinvestment risk by matching the investment horizon to the bond’s duration.
What is convexity in bond pricing?
A measure of the curvature in the bond price-yield relationship, improving accuracy over duration.
What is key-rate duration?
Measures bond price sensitivity to changes in specific points on the yield curve.
