Fixed Income Valuation: Rapid Fire

What this video covers

• Why bond prices move inversely to interest rates, and how to estimate the price change using duration (approximately 1% per year of duration per 1% rate move)
• The critical distinction between duration and maturity: only zero-coupon bonds have duration equal to maturity, while coupon-paying bonds always have duration less than maturity
• The yield hierarchy for discount bonds (coupon rate less than current yield less than yield to maturity less than yield to call) and why premium bonds reverse the order
• How to calculate current yield, conversion ratio, conversion value (parity), and whether a convertible bond should be converted or held
• The tax treatment of corporate, Treasury, and municipal bonds, including the exam trap that municipal bond tax exemption applies to interest only, not capital gains
• How credit spreads widen in recessions and financial crises due to flight to quality, and narrow in economic expansion
• The discounted cash flow valuation rule for bonds: buy when intrinsic value exceeds market price, avoid when it is lower