3 Bonds

Question 1

Inverted yield curve indicates recession in…

3.58

Answer 1

6-12 months

aka Negative or Downward-sloping

Question 2

What determines the short-term end of the yield curve? the long-term end?

3.58

Answer 2

• Short-term: Fed policy
• Long-term: Investor expectations, market-generated, predictive/anticipatory

Question 3

What does a positive yield curve mean?

3.58

Answer 3

Aka, a “Normal” or “Upward-Sloping” yield curve.
This is healthy. Typically a borrower should be paid more for a longer-term loan (more risk).

Question 4

Current Yield of a bond

3.66

Answer 4

annual coupon ÷ current market price

Question 5

Nominal Yield of a bond

3.66

Answer 5

stated or coupon yield

Question 6

How does trading at a premium or discount affect Current Yield, YTM, & YTC (and YTW)?

Answer 6

Question 7

Duration

Answer 7

The weighted average of the present values of future cash flows of a bond or bond portfolio.
- Always shorter than maturity for income-producing bonds
- Equal to maturity for zero-coupon bonds

Question 8

Convexity

in the context of bonds

Answer 8

More complicated way of calculating changes in bond prices due to changes in yields