It could be called at any time during the tenure of the bond
Principal repayment can be deferred until it reaches maturity
It could not be called right after the date of issue
10-year, 15% coupon
10-year, 10% coupon
3-year, 10% coupon
$90 per share profit
$0 per share profit (break-even)
Unlimited losses
An upward sloping yield curve
All cash payments will be received in a prompt and timely manner
All cash flows can be discounted at the same rate
The value of two shares of stock
The value of one share of stock plus the exercise price
The exercise price
A Conventional mortgage is an example of an amortizing loan
Call provisions give the issuer the right and the obligation to retire all or a part of an issue prior to maturity
Sinking fund provisions provide for the repayment of principal through a series of payments over the life of the issue
Accrued interest is the interest earned since the last coupon payment date and is paid by a bond buyer to a bond seller
Clean price is the quoted price of the bond without accrued interest
Full price refers to the quoted price without any accrued interest
$1,000
$1,203
$1,230
91.87
83.17
91.35
9.872 percent
10.365 percent
10.942 percent
Yield to maturity at the time of the investment
Prevailing yield to maturity at the time interest payments are received
Coupon rate
0.1
0.0738
0.05
4.3
3.6
3.50
Callable bond with convexity close to zero at y2
Callable bond with convexity close to zero at y1 and y3
Puttable bond with convexity close to zero at y2
Floating rate bond
Option-free 5% coupon bond
Zero-coupon bond
10
100
9
The price of a callable bond increases when interest rates increase
Issuance of a callable bond is equivalent to a short position in a straight bond plus a long call option on the bond price
The put feature in a puttable bond lowers its yield compared with the yield of an equivalent straight bond
Bond's actual price change is -4.83 and predicted price change according to formula that adjusts for both convexity and duration is -4.73
Bond's actual price change is -5.052996 and predicted price change according to a formula that adjusts for both convexity and duration is -4.85
Bond's actual price change is -4.83 and predicted price change according to a formula that adjusts for both convexity and duration is -4.83
A zero-coupon bond maturing in 5 years
A coupon-paying bond, with Macaulay Duration of 3.81 years and convexity of 16.39 years squared
A bond with a coupon of 10% maturing in 10 years that is immediately callable
5.7%
6.4%
3.57%