Fixed Income Valuation Factors
Chapters in this video
- 0:00 Maturity risk and the three yield curve shapes
- 1:37 Current yield, YTM, and the premium-discount hierarchy
- 4:46 Convertible bonds: conversion ratio and parity value
- 6:10 Credit ratings cutoff and spread behavior in recessions
- 7:29 Discounted cash flow valuation and decision rules
- 8:34 Rapid-fire exam recap
What this video covers
- How maturity drives interest rate risk, and what normal, inverted, and flat yield curves signal about the economy
- How current yield, yield to maturity (YTM), and yield to call (YTC) differ in what they measure and when each applies
- Why coupon rate, current yield, and YTM follow a fixed order that flips between discount and premium bonds, and why YTC cannot be forced into that hierarchy
- How to calculate conversion ratio and conversion value (parity) for convertible bonds, and when conversion becomes attractive
- Why Baa3 (Moody's) and BBB- (S&P/Fitch) are the investment-grade cutoff lines, and what happens to bonds rated below them
- How credit spreads widen during recessions and narrow during growth, and why investor risk demand drives that behavior
- How discounted cash flow (DCF) valuation proves the inverse price-yield relationship, and the three DCF decision rules for buy, avoid, or fair value
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