Bond Pricing, Yields, and Duration Basics
Fixed-income cards — price/yield inverse, YTM, coupon vs discount, and duration intuition.
12 cards· by GuruOwl
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Try it- 01What is the inverse relationship between bond prices and yields?When market yields rise, existing bond prices fall (and vice versa) to reprice cash flows.price-yield
- 02What is yield to maturity (YTM)?The single discount rate that equates a bond’s price to the PV of its promised coupons and principal.ytm
- 03When does a bond trade at a premium or discount?Premium: coupon rate > YTM. Discount: coupon rate < YTM. Par: coupon ≈ YTM.price
- 04What is duration (Macaulay/modified intuition)?A measure of interest-rate sensitivity / weighted average time to cash flows; higher duration → more price volatility for a yield change.duration
- 05How does maturity affect duration (coupon bond, ceteris paribus)?Longer maturity generally increases duration and rate sensitivity.duration
- 06How does coupon rate affect duration?Higher coupons → lower duration (more cash arrives earlier).duration
- 07What is convexity (exam sketch)?Curvature in the price–yield relationship; for a given duration, higher convexity is generally beneficial.convexity
- 08What is credit risk for a corporate bond?Risk that the issuer fails to pay coupons/principal as promised; reflected in credit spreads over Treasuries.credit
- 09What is a Treasury bond’s distinctive risk feature vs corporates?Considered free of credit default risk (still has interest-rate and inflation risk).credit
- 10Current yield formula?Annual coupon / current price (ignores capital gain/loss to maturity).yields
- 11Holding period return if yields fall after you buy a bond?Price rises → capital gain (plus coupons) — positive mark-to-market if sold.price-yield
- 12Zero-coupon bond duration relative to maturity?Macaulay duration equals maturity (all cash at the end).duration