## 1. BOND YIELDS

### 1.1. Yield to Maturity

1.1.1. the rate of return earned on a bond if it is held to maturity

### 1.2. Yield to Call

1.2.1. the rate of return earned on a bond when it is called before its maturity date.

1.2.2. -> Sells at Premium

1.2.2.1. In general, if a bond sells at a premium, then

1.2.2.1.1. 1) coupon > rd

1.2.2.1.2. 2) a call is more likely

1.2.3. -> Sells at Discount

1.2.4. Expected to Earned

1.2.4.1. YTC on premium bond

1.2.4.2. YTM on par and discount bonds

## 2. SEMIANNUAL BOND

### 2.1. STEPS :)

2.1.1. 1) Multiply years by 2 : number of periods = 2n.

2.1.2. 2) Divide nominal rate by 2 : periodic rate (I/YR) = rd / 2.

2.1.3. 3) Divide annual coupon by 2 : PMT = ann cpn / 2.

### 2.2. Annual VS Semiannual

2.2.1. (Semiannual effective rate) > (the annual bond’s effective rate)

2.2.1.1. so you would prefer the semiannual bond.

## 3. CHANGES IN BOND VALUES OVER TIME

### 3.1. At maturity, the value of any bond must equal its par value.

### 3.2. current yield (CY)= Annual Coupon Payment / Current Payment

### 3.3. Capital Gains Yield(CGY) = Change in Price / Beginning Price

### 3.4. Expected Total Return = YTM = (Expected CY) + ( Expected CGY)

## 4. WHAT IS BOND?

### 4.1. A long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific dates, to the holders of the bond.

## 5. BOND FEATURES

### 5.1. Par Value - the face value of a bond

### 5.2. Coupon Interest Rate - the specified number of dollars of interest paid each year

### 5.3. Maturity Date - a specified date on which the par value of a bond must be repaid.

### 5.4. Issue date – when the bond was issued.

### 5.5. Yield to maturity (YTM)- rate of return earned on a bond held until maturity (also called the “promised yield”).

### 5.6. Yield to call (YTC) - rate of return earned on a bond when it is called before its maturity date.

### 5.7. Call Provision - a provision in a bond contract that gives the issuer a right o redeem the bonds under specified terms prior to the normal maturity date.

## 6. BOND VALUATION

### 6.1. (Par Bond)

6.1.1. rd = coupon rate, fixed-rate bond sells at par

### 6.2. (Discount Bond)

6.2.1. rd > coupon rate, fixed-rate bond sells below par

### 6.3. (Premium Bond)

6.3.1. rd < coupon rate, fixed-rate bond sells above par