Bond Pricing and the Price-Yield Relationship
Chapters in this video
- 0:00 The golden seesaw: rates up, prices down
- 1:57 Discount, premium, and par: coupon versus market rate
- 2:37 All bonds pull to par at maturity
- 3:15 Most volatile bond: long maturity plus low coupon
- 4:30 Basis points and tiny yield changes
- 5:55 Dollar price versus basis price quoting
- 6:54 Government bonds in 32nds: the 99-16 math
- 7:37 Rapid-fire exam recap
What this video covers
- Why bond prices and market interest rates move in opposite directions, and how to apply the seesaw rule when rates rise or fall
- How a bond's coupon rate compared to market rates determines whether it trades at a discount, premium, or par
- Why every bond's price converges toward par at maturity, and the capital gain or loss implications for discount and premium bonds
- Which bond characteristics produce the highest price volatility: the 30-year zero-coupon bond as the extreme case
- What a basis point (bp) is, how to convert basis points to percentage changes, and the approximate dollar value of one basis point per bond
- The distinction between dollar price (percentage of par) and basis price (yield to maturity), and which security types use each quoting method
- How government bond quotes use 32nds, and the step-by-step math to convert a quote like 99-16 into actual dollar value
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