Fixed Income Securities
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What is a fixed income security?
A fixed income security is a debt instrument that pays the holder a fixed series of cash flows (coupon payments) at predetermined intervals and returns the principal at maturity.
What is a coupon bond and how does it differ from a zero-coupon bond?
Coupon bond pays periodic interest; zero-coupon is issued at discount.
What is the face value (par value) of a bond?
Face value is the nominal or principal amount of a bond on which coupon interest is calculated and which is repaid to the bondholder at maturity.
What is the price-yield relationship in fixed income securities?
Bond price and yield move inversely to each other always.
What is a coupon rate in the context of fixed income securities?
The coupon rate is the annual rate of interest paid on a bond, expressed as a percentage of the bond's face value, and it determines the periodic interest payments made to the bondholder.
What is the concept of current yield of a bond?
Annual coupon payment divided by current market price.
What is Yield to Maturity (YTM) of a bond?
YTM is the total return anticipated on a bond if it is held until maturity, expressed as an annual rate, and accounts for all coupon payments, the difference between purchase price and face value, and the time value of money.
What is a callable bond in fixed income markets?
Bond that issuer can redeem before scheduled maturity date.
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