Financial Analysis. Lesson 16. Fixed Income Securities and Bond Valuation

Financial Analysis. Lesson 16. Fixed Income Securities and Bond Valuation

1. Fixed income securities provide regular interest payments over a specified term.

2. Bond is a loan made by an investor to a borrower, typically corporate.

3. Face value represents the bond’s nominal value, repaid at maturity.

4. Coupon rate is the fixed interest paid to bondholders periodically.

5. Yield to maturity (YTM) estimates bond returns if held until maturity.

6. Discount bond sells below face value, offering a higher yield.

7. Premium bond trades above face value, yielding less than coupon rate.

8. Callable bond allows the issuer to repay bond before maturity date.

9. Convertible bond gives bondholders option to convert debt into equity.

10. Bond duration measures sensitivity to interest rate fluctuations on prices.

11. Credit rating evaluates bond issuer's creditworthiness and risk of default.

12. Interest rate risk is the bond value impact from rate changes.

13. Inflation risk affects bonds as inflation reduces purchasing power over time.

14. Reinvestment risk arises when coupon payments reinvested at lower rates.

15. Zero-coupon bond pays no periodic interest but is issued at a discount.

16. Floating rate bond has interest rates that adjust with market conditions.

17. Debenture is an unsecured bond backed solely by the issuer's credit.

18. Sinking fund provision requires issuer to retire part of bond issue early.

19. Municipal bond is issued by governments to fund public infrastructure projects.

20. Treasury bond is a government-issued bond considered low-risk and highly secure.

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Technical Examples:

1. Yield to maturity (YTM) helps investors evaluate bond return potential.

2. Bond duration guides investors on interest rate sensitivity of bonds.

3. Credit rating provides insight into default risk of bond issuers.