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Bond Price and Yield

In: Applied Fundamentals in Finance

Author

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  • Enzo Mondello

    (CfBS Center for Business Studies AG)

Abstract

Bonds belong to the traditional asset classes together with equity securities. These are interest-bearing securities that are securitised and thus tradable. The global bond market is large and diverse and offers important investment opportunities, especially for institutional investors. Its importance can also be seen in the fact that bond markets are larger than equity markets worldwide. In contrast to equity securities, the majority of fixed-income securities are traded over the counter. An understanding of bonds is useful as these securities increase the universe of investments available to create a diversified portfolio. The chapter first deals with the basics and the various types of bonds, followed by the pricing of option-free bonds with the cash flow model. In addition to the pricing of fixed-rate bonds, the pricing of floating-rate bonds is also examined. The chapter concludes with a discussion of the three yield measures of current yield, yield to maturity, and total return, which allow investors to assess the return on their investment in fixed-rate option-free bonds.

Suggested Citation

  • Enzo Mondello, 2023. "Bond Price and Yield," Springer Texts in Business and Economics, in: Applied Fundamentals in Finance, chapter 11, pages 367-411, Springer.
    • Handle: RePEc:spr:sptchp:978-3-658-41021-6_11
    DOI: 10.1007/978-3-658-41021-6_11
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