ABSTRACT
This chapter shows how the market value of any bond can be determined quickly and accurately. One of the fundamental principles addresses the relationship between the yield, or return, earned by a bond and the bond’s market value. Changes in a bond’s yield to maturity directly impact the market value of the bond. The theory and methods discussed in this chapter are useful for establishing both the value of a bond and the riskiness of its cash flows. A bond’s duration is a useful tool for determining the bond’s sensitivity to changes in market interest rates. Two different duration metrics are introduced and used to demonstrate the risks of a given bond.
