Chapter 5 preview
Chapter 5: Fundamentals of Debt
Chapter 5 covers how bond prices and yields interact. When market rates rise, bond prices fall — and the reverse. Know the three yield measures: nominal (coupon), current yield, and yield to maturity. For a discount bond, coupon < CY < YTM; for a premium bond, the order reverses. Duration measures price sensitivity to rate changes. Zero-coupon bonds accrete toward par, with annual imputed interest taxed even though not received.
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Chapter summary
Fundamentals of Debt
Chapter 5 covers how bond prices and yields interact. When market rates rise, bond prices fall — and the reverse. Know the three yield measures: nominal (coupon), current yield, and yield to maturity. For a discount bond, coupon < CY < YTM; for a premium bond, the order reverses. Duration measures price sensitivity to rate changes. Zero-coupon bonds accrete toward par, with annual imputed interest taxed even though not received.
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Key concepts
- Fixed-Income Securities
- Why Bond Prices Fluctuate from Par
- Bond Pricing
- Prices and Yields: An Inverse Relationship
- Redeeming Bonds
- Tax Issues Associated with Debt Securities
- Fixed-Income Securities
- Why Bond Prices Fluctuate from Par
- Bond Pricing
- Prices and Yields: An Inverse Relationship
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