Fixed Income Mathematics
Offering explanations, exercises, and examples without demanding sophisticated mathematics, this self-teaching book will serve as a gateway to financial mathematics and to increased competence in business analysis.
TABLE OF CONTENTS Fixed Income Mathematics
Chapter 11: Quotations and Bond Market Reports
If you do any work at all in finance, you should know how to read a bond market report. Yet every class I have ever given has had students who had not learned this skill. Although it isn t really mathematical, it is an important part of the skills needed to work effectively in any financial field, so it deserves a place in this book. When you finish this chapter, you should be able to read just about any fixed-income market report with understanding.
Remember that bond prices are stated as a percent of par, not in dollars. However, market quotations are frequently stated as a yield basis. The yield must be converted to a dollar price (percentage of par) in order for the actual transaction to be done. Use the equations shown in Chapter 6 or Chapter 9 to do this.
LONG-TERM INSTRUMENTS
Long-term instruments, including most Treasury bonds and notes, federal agency bonds, corporate bonds, and municipal term bonds, are generally quoted on a dollar price basis, as a percent of par. Treasuries are quoted as a percent of par, frequently with the 32s after a decimal point. The minimum change for Treasuries and federal agencies is generally 1/32 of a point. Municipal term bonds and corporate bonds generally have a minimum change of 1/8 point. A municipal term bond is, generally, a long-term bond with a sinking fund, which may be active, and a call feature.
Almost all bonds are traded in a dealer market. An...
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