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10 Cards in this Set
- Front
- Back
Three source of return to coupon bond
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Coupon interest payments
Reinvestment income from coupon capital gain or loss on principal value |
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Yield to call (put)
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1) calculate as YTM but with the number of periods until the call
2) call price substituted for the number of periods to maturity and maturity value |
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Yield to worst
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worst yield outcome of all possible given the call provision of the bond
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Cash flow yield assumption
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1) all cash flows discount at same rate
2) bond will held to maturity, with all coupons reinvested to maturity at a rate equal to YTM 3) all coupon payments will be made on time |
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Bond equivalent yield
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[(1+monthly CFY)^6 - 1] x 2 into bond equivalent form
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Bond equivalent yield of annual pay bond
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(1 + semiannual pay YTM/2)^2 - 1
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3 commonly used yield spread
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Nominal spread
zero-volatility spread option adjusted spread |
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Nominal spread
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bond YTM - Treasury YTM
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option adjusted spread
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measure when bond has embedded options
callable bond - must have higher yield than identical option free bond Option adjusted spread is higher because it embedded with extra risk |
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Option cost in %
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Z-spread - OAS
Callable bond Z-spread > OAS - option cost > 0 Putable bond Z- spread < OAS - option cost < 0 |