Bond Pricing Fundamentals
Chapters in this video
- 0:00 Par value and the percentage-of-par quoting trap
- 1:38 Coupon yield is fixed forever
- 2:48 The price-yield seesaw
- 3:29 Four yield measures and the four-way tie at par
- 4:23 Discount climbs, premium dips: yield hierarchy
- 5:36 Accrued interest and settlement mechanics
- 6:45 30/360 versus actual/365 day count conventions
- 7:04 Rapid-fire exam recap
What this video covers
- Why a quote of 98 means $980, not $98, and how bond quotes as percentages of par create exam traps
- The distinction between a municipal bond's $1,000 par value and its $5,000 minimum denomination block size
- Why coupon yield, also called nominal yield, is fixed at issuance and never changes regardless of market conditions
- How bond prices and yields move in opposite directions, and what happens when new issuance rates diverge from an existing bond's fixed coupon
- The four yield measures (nominal yield, current yield, yield to maturity, yield to call) and why they all equal each other at par
- The "discount climbs, premium dips" mnemonic for yield hierarchy ordering on bonds priced above or below par
- Why the buyer pays accrued interest to the seller at settlement, and the critical difference between 30/360 day counts for corporates, municipals, and agencies versus actual/365 for U.S. government Treasuries
Read the full lesson, free
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