Question

"please make five questions or facts you have learned about bonds. When you reply to others, please take these questions and comments into consideration."

Answer 1

Q1) What are bonds ?

Answer: - Bonds are a type of debt instruments which gives the holder of right to receive contractual cash-flows at regular interval and payment of principal amount at maturity.

Q2) What are types of bonds ?

Answer: -

• Treasury Securities. Bonds, bills, and notes issued by the U.S. government are generally called “Treasuries” and are the highest-quality securities available
• Municipal Bonds
• Corporate Bonds.
• Zero-Coupon Bonds.

Q3) How bonds are valued?

Bonds are valued on the basis of discounted cashflow technique. The bond value is present value of all future cash-flows discounted by rate using yield to maturity(YTM).

Q4) What is relation between YTM and Price of bond?

Answer: There is an inverse relationship YTM(interest rate) and price of the bond. When interest rate rises the price of bond falls and when interest rate falls price of the bond increases.

Q5) What do you mean by Sensitivity of the bond?

The sensitivity of the bond is referred as rate of change in bond prices due to change in the interest rates. For a bond of higher maturity period sensitivity is also high and vice versa.