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An overview of various concepts related to bond valuation and yield, including yield to maturity, equivalent taxable yield for municipal bonds, and bond ratings. It also covers reading corporate and treasury bond quotes in the wall street journal. Useful for students and investors looking to understand the intricacies of bond valuation and yield.
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Approximate yield to maturity = Annual interest + par value - current price payments years to maturity par value + current price
Tax-free yield on the municipal bond
investor’s marginal tax bracket)
Close -- the last pricepaid for that issue.Measured in 1/8s or$1.25.
Net chg -- the changein closing price fromthe prior day’s closingprice. Measured in1/8s or $1.25.
Value of a bond = Present value of
present value of repayment All interest payments of par at maturity
Bonds fluctuate in value, and the longer the time tomaturity the greater the fluctuation.
Interest rates affect bond valuation by changing thedemand, and price, for a bond.
Interest rates and bond values are inversely relatedin the secondary market. But the call price limits theupward price on a bond with a call provision. - As a bond approaches its maturity date, its marketvalue approaches it par value.
