Bond Market

Question 1

prime rates

Answer 1

The basic interest rate on
short-term loans that the
largest commercial banks
charge to their most creditworthy
corporate customers.

Question 2

Federal funds rate

Answer 2

Interest rate that banks charge
each other for overnight loans of
$1 million or more .

Question 3

call money rate

Answer 3

The interest rate brokerage firms
pay for call money loans, which
are bank loans to brokerage firms.
This rate is used as the basis for
customer rates on margin loans

Question 4

commercial paper

Answer 4

Short-term, unsecured debt issued

by large corporations.

Question 5

bonds

Answer 5

IOU that obligates the issuer to pay the bondholder a fi xed sum of money at the
bond’s maturity along with constant, periodic interest payments during the life of the bond

Question 6

convertible

bonds

Answer 6

have a conversion feature that grants bondholders the right to convert their bonds into
shares of common stock of the issuing corporation.

Question 7

“putable” bonds

Answer 7

have a put feature that grants bondholders the right to sell their bonds back to the issuer at a
prespecified price.

Question 8

coupon rate

Answer 8

A bond’s annual coupon divided by
its par value. Also called coupon
yield or nominal yield.

Question 9

current yield

Answer 9

A bond’s annual coupon divided by

its market price.

Question 10

calculating bond’s price given its yield

Answer 10

bond price = coupon/ YTM [1-(1/(1+YTM/2^2M))] + FV/(1+YTM/2)^2M

C = Annual coupon, the sum of two semiannual coupons
FV = Face value
M = Maturity in years
YTM = Yield to maturity

The price of the bond is the sum of the present values of coupons and principal

Question 11

Premium bonds

Answer 11

Bonds with a price greater than par value are said to be selling at a
premium. The yield to maturity of a premium bond is less than its coupon rate.

Question 12

Discount bonds

Answer 12

Bonds with a price less than par value are said to be selling at a discount.
The yield to maturity of a discount bond is greater than its coupon rate.

Question 13

Par bonds.

Answer 13

Bonds with a price equal to par value are said to be selling at par. The
yield to maturity of a par bond is equal to its coupon rate.

Question 14

Yield To Maturity (YTM)

Answer 14

the total return anticipated on a bond if the bond is held until it matures

Calculations of yield to maturity (YTM) assume that all coupon payments are reinvested at the same rate as the bond’s current yield, and take into account the bond’s current market price, par value, coupon interest rate, and term to maturity. YTM is a complex but accurate calculation of a bond’s return that can help investors compare bonds with diff

Question 15

difference between ytm and current yield

Answer 15

Yield to maturity is very similar to current yield, which divides annual cash inflows from a bond by the market price of that bond to determine how much money one would make by buying a bond and holding it for one year. Yet, unlike current yield, YTM accounts for the present value of a bond’s future coupon payments. In other words, it factors in the time value of money, whereas a simple current yield calculation does not.

Read more: Yield To Maturity (YTM) | Investopedia https://www.investopedia.com/terms/y/yieldtomaturity.asp#ixzz5P1LTE9kW
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Question 16

duration

Answer 16

A widely used measure of a bond prices’s
sensitivity to changes in bond
yields.
Duration is an approximate measure of a bond’s price sensitivity to changes in interest rates. If a bond has a duration of 6 years, for example, its price will rise about 6% if its yield drops by a percentage point (100 basis points), and its price will fall by about 6% if its yield rises by that amount.

Question 17

yield to worst (YTW)

Answer 17

lowest potential yield that can be received on a bond without the issuer actually defaulting
givens investors the wrost case senario

Question 18

yield to call

Answer 18

The yield to call tells you the total return you would receive if you were to buy and hold the security until the call date. As an investor, you should be aware that this yield is valid only if the bond is called prior to maturity. The calculation of yield to call is based on the coupon rate, the length of time to the call date, and the market price of the bond