Bonds & Fixed Income
12 terms
Callable Bond
Bonds & Fixed Income
qualitative
A bond the issuer may redeem before maturity, at a stated price on stated dates.
Test: the terms give the issuer an option to redeem early; the investor's return should be computed to the earliest call date
Certificate of Deposit
Bonds & Fixed Income
%
A negotiable short-term deposit receipt issued by a bank at a discount to face value.
Yield = [(Face Value - Price) / Price] x (365 / Days to Maturity) x 100
Clean Price
Bonds & Fixed Income
₹
A bond's quoted price excluding accrued interest.
Clean Price = Dirty Price - Accrued Interest
Commercial Paper
Bonds & Fixed Income
%
A short-term unsecured promissory note issued by a company at a discount to face value.
Yield = [(Face Value - Price) / Price] x (365 / Days to Maturity) x 100
Convertible Bond
Bonds & Fixed Income
₹
A bond that can be exchanged for a fixed number of the issuer's shares at the holder's option.
Conversion Value = Conversion Ratio x Current Share Price; Conversion Premium = (Bond Price - Conversion Value) / Conversion Value
Convexity
Bonds & Fixed Income
ratio (x, times)
The curvature in the relationship between a bond's price and its yield, correcting duration's straight-line estimate.
Price Change % = -Modified Duration x Change in Yield + 0.5 x Convexity x (Change in Yield) squared
Corporate Bond
Bonds & Fixed Income
qualitative
A debt security issued by a company to borrow from investors rather than from banks.
Corporate Bond Yield = Government Security Yield of the same maturity + Credit Spread
Coupon Rate
Bonds & Fixed Income
%
The annual interest a bond pays, expressed as a percentage of its face value.
Annual Coupon = Face Value x Coupon Rate
Credit Rating
Bonds & Fixed Income
qualitative
An agency's opinion on an issuer's ability to meet its debt obligations, expressed on a letter scale.
Scale in India runs AAA, AA, A, BBB, BB, B, C, D, with plus and minus modifiers within categories
Credit Risk
Bonds & Fixed Income
%
The risk that a borrower fails to make interest or principal payments as promised.
Expected Loss = Probability of Default x Loss Given Default x Exposure at Default
Credit Spread
Bonds & Fixed Income
bps
The extra yield a bond offers over a government security of the same maturity, compensating for credit risk.
Credit Spread = Corporate Bond Yield - Government Security Yield of the same maturity
Current Yield
Bonds & Fixed Income
%
A bond's annual coupon expressed as a percentage of its current market price.
Current Yield = Annual Coupon / Current Market Price x 100