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Details

205: Section 1 Ch 2
Bonds
4
Other
Professional
07/29/2008

Additional Other Flashcards

 


 

Cards

Term
What is a bonds Yield to Maturity?
Definition
  • Bond's internal rate of return:  comprises:
    • income return (income generated by the bond holding)
    • Capital return (gain or loss on the initial investment)
Term
What yield measures are commonly used by bond investors?
Definition
  • Nominal Yield
    • overall income generated as a proportion of its nominal value
  • Income or Running Yield
    • overall income generated as a proportion of its current market value
  • Redemption Yield (Yield to Maturity)
    • income generated as well as capital loss or gain, if the bond is held to maturity
Term
List and describe the different types of bonds.
Definition
  • Government Bonds - sterling and overseas
  • Index-Linked Government Bonds
    • coupon and redemption payment linked to measure of inflation
  • Corporate Bonds - Investment Grade
    • Known as 'credits'
    • Higher yield as more risky
    • Bondholders rank above shareholders - less risky than shares
    • Rated by independent credit ratings agencies
      • Triple A - Triple B
  • High Yield - Non-Investment Grade
    • Includes bonds rates BB and below
  • Emerging Market Debt
    • bonds issued by governments and companies in less developed countries
Term

Explain new issues and the underwriting process of Government and Corporate Bonds

Definition

Government: 

  • Issued by Debt Management Office using an auction process
  • Bids above £500,000 are made on a competitive basis, stating the amount and price
    • ranked  in order and sold to those whose bids are at or above min. amount
    • Successful bids accepted at the weighted average price

 Corporate Bonds:

  • Issued through placing
  • Priced by reference to yield margin or spread over that of a gilt of the same maurity
  • Use of underwriter to guarantee whole issue.
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