Bond Prices and Yields推荐.pdfVIP

CHAPTER FOURTEEN Bond Prices and Yields IN THE PREVIOUS chapters on risk and return for our analysis of the universe of potential relationships, we treated securities at a high investment vehicles. level of abstraction. We assumed implicitly The bond is the basic debt security, and that a prior, detailed analysis of each security this chapter starts with an overview of the already had been performed, and that its risk universe of bond markets, including Treasury, and return features had been assessed. corporate, and international bonds. We turn We turn now to specific analyses of partic- next to bond pricing, showing how bond ular security markets. We examine valuation prices are set in accordance with market principles, determinants of risk and return, interest rates and why bond prices change and portfolio strategies commonly used with those rates. Given this background, we within and across the various markets. can compare the myriad measures of bond We begin by analyzing debt securities. A returns such as yield to maturity, yield to call, debt security is a claim on a specified periodic holding-period return, and realized com- stream of income. Debt securities are often pound rate of return. We show how bond called fixed-income securities because they prices evolve over time, discuss certain tax promise either a fixed stream of income or rules that apply to debt securities, and show one that is determined according to a speci- how to calculate after-tax returns. Finally, we fied formula. These securities have the advan- consider the impact of default or credit risk tage of being relatively easy to understand on bond p