Bonds Flashcards
1
Q
What is a coupon rate?
A
Fixed interest rate (percentage of the nominal value) (before the bond enters the secondary market).
2
Q
What is meant by maturity?
A
Time when the bond is paid back (the full nominal value).
3
Q
What is the nominal value of a bond?
A
It is the real value of the bond outside of the secondary market’s influence.
4
Q
How do you work out the yield of a bond?
A
coupon/ market price X 100
5
Q
What is the relationship between the market price of a bond and its yield?
A
- Inverse
When referring to the calculation for yield, you see that when the fixed coupon rate is divided by a smaller market price it makes the yield increase and the opposite happens if the denominator is a larger market price.
