Term
| Simply put, what is the value of a bond? |
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Definition
| the present value of it's cash flows discounted at the approximate periodic required return. |
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Term
| What are the cash flow components of a bond? |
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Definition
| 2 components: periodic coupons and par value at maturity |
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Term
| Describe the steps involved in bond valuation? |
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Definition
- Estimate the cash flows (2 kinds - coupons + principal at maturity
- Determine the appropriate discount rate (either the bond's YTM or a series of spot rates)
- Calculate the PV of the estimated cash flows
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Term
| What are strips? Talk about their parts... |
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Definition
STRIPS are zero coupon bonds issued by the treasury. Created by request when a coupon bond is presented to the treasury. The bond is stripped into two componetns - principal and coupon (p-strips and c-strips).
C-Strips can be put with any bond, P-strips are identified with specific bonds.
The value of a p-strip comes from the underlying bond. |
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Term
| bond price quotations.. what do treasury, corporate & municipal bonds use... |
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Definition
treasury uses a 32nds convention
corporate and municipal bonds are quoted in eights.
Both use '+' to indicate a half tick... eg 101.13+ = 101+(13.5/32) |
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Term
| shorter term c-strips tend to trade.... long term c-strips tend to tade... |
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Definition
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