Publisher's Synopsis
A bond is a debt instrument, usually tradeable, that represents a debt owed by the issuer to the owner of the bond. Most commonly, bonds are promises to pay a fixed rate of interest for some years, and then to repay the principal on the maturity date.
Beginning with hypothetical examples, we then work with a real bond, describing a step-by-step procedure to design the cash flow in a spreadsheet, compute the yield to maturity and other measures of return, according to the bond indenture. After reading this chapter, you will be capable of:
-Designing the cash flow for a particular investment amount
-Pricing a bond and calculating its yield to maturity, using an Excel spreadsheet.
-Calculating the total return for an investment horizon.
-Performing a sensitivity analysis of price, yield, and total return.
Chapter Two describes in detail two measurements to estimate the volatility of a bond price: duration and convexity. After reading this chapter you will be capable of:
-Understanding the price-yield relationship of an option-free bond.
-Calculating the duration, modified duration, and convexity for real bonds using Excel spreadsheets.
-Understanding why the duration is a measure of a bond´s price sensitivity to yield changes.
And much more
