Introduction to Fixed-Income Valuation Flashcards
The relationship between a bond price and its market discount rate is ______.
convex
The price of a lower- coupon bond is _____volatile than the price of a higher coupon bond, other things being equal
more
Generally, the price of a longer-term bond is _____ volatile than the price of
shorter- term bond, other things being equal. An exception to this phenomenon can occur on low- coupon (but not zero- coupon) bonds that are priced at a
discount to par value.
more
Between coupon dates, the _________ of a bond is split between the _______ and the accrued interest.
full (or invoice, or “dirty”) price, flat (or quoted, or “clean”) price
_________ is used to value illiquid bonds by using prices and yields on
comparable securities having the same or similar credit risk, coupon rate, and
maturity.
Matrix pricing
The __________ of an annual interest rate is the number of periods in the year.
periodicity
Street convention yields assume payments are made on ___________.
scheduled dates,
neglecting weekends and holidays
The current yield is the annual coupon payment divided by the flat price,
thereby neglecting as a measure of the investor’s rate of return the _______
time value
of money, any accrued interest, and the gain from buying at a discount and the
loss from buying at a premium
The ________ is like the current yield but includes the straight- line amortization of the discount or premium
simple yield
The __________ on a callable bond is the lowest of the yield- to- first- call,
yield- to- second- call, and so on, calculated using the call price for the future value and the call date for the number of periods.
yield-to-worst
The ________ on a floater is the spread required by investors, and to
which the quoted margin must be set, for the FRN to trade at par value on a
rate reset date.
discount margin
Money market discount rates ________ the investor’s rate of return (and the
borrower’s cost of funds) because the interest income is divided by the face
value or the total amount redeemed at maturity, and not by the amount of the
investment.
understate
In a ________, the delivery of the security and cash payment is made on a
settlement date within a customary time period after the trade date—for example, “T + 3.
cash market
Implied spot rates can be calculated as _________averages of forward rates
geometric
A ________ is the spread over or under a government bond rate, and an
_______ is the spread over or under an interest rate swap rate.
G-spread, I-spread
