Bond Price Calculation The price of a bond is influenced by various factors, including its cashflow features and market discount rate. The cash flow features are periodic payments made to bondholders, such as interest or coupon payments. On the other…

Differences between Analytical Duration and Empirical Duration Analytical duration refers to estimating duration and convexity using mathematical formulas (as done in the previous learning objectives). Analytical duration approximates the effect of changes in benchmark yields on bond prices by assuming…

The effective duration calculates expected changes in price for a bond or portfolio of bonds given a basis point change in yield. This, however, is only valid for parallel shifts in the yield curve. The key rate duration presents an…

Fixed-income securities depend on laws and regulations of the place of issuance, where bonds are traded, and the holders of bonds. National and Foreign Bonds National bonds are issued and traded in a country. Domestic bonds are issued by local…

A fixed-income security is a financial obligation that pays a fixed amount of interest—in the form of coupon payments—to investors at specified points in the future. The payments are anchored on contractual guidelines and must be made. This is, in…

Bond Indenture A bond indenture is a legal document that outlines all the parameters of the bond issue, such as the par amount, issuer, coupon rate, security pledge, and the rights of bondholders. When analyzing a bond, it is important…

Plain Vanilla or Bullet Bonds The most common payment structure is a plain vanilla bond with periodic, fixed coupon payments and a lump-sum payment of principal at maturity. Plain vanilla bonds are very common for government and corporate bond issuances….

Covenants are legally enforceable rules that parties (borrowers and lenders) agree on. The purpose of covenants is to protect bondholders by providing some assurance on what the bond issuer will and won’t do over the bond’s life. There are two…