Fixed Income Bond Valuation Flashcards
What is the “Market Discount Rate”?
The rate of return required by investors given the risk of the bond investment.
Also known as:
- Required Yield
- Required Rate of Return
What is “Required Yield”?
The rate of return required by investors given the risk of the bond investment.
Also known as:
- Market Discount Rate
- Required Rate of Return
What is the “Yield-to-Maturity”?
The internal rate of return on a fixed-income instrument’s cash flows, assuming all cash flows are received on their scheduled dates.
What is a “Flat Price”?
The full price of a bond minus accrued interest.
Flat prices are usually quoted by bond dealers.
What is “Accrued interest”?
The amount of interest in currency or par value terms of a fixed-income instrument that accumulates from the last coupon payment until the trade settlement date.
The amount is paid by the buyer to the seller.
What does “Full Price” mean?
The price of a bond, including any accrued interest owed to the seller.
Aka:
Flat Price + Accrued Interest
What is the “Trade Settlement Date”?
The date when the buyer and seller transfer consideration and securities.
What is a “constant yield-price trajectory”?
A graphical depiction of the relationship between time-to-maturity and a bond price.
Assumes no default.
What is “Matrix Pricing”?
An estimation process for financial instruments based on the prices of comparable instruments.
What is “Required Yield Spread”?
The difference between the yield-to-maturity between a bond and that of a government benchmark with the same time to maturity.
