Bonds

Question 1

what is a bond?

Answer 1

a loan that can either be given to a government or a corporation

govt bonds / corp bonds

Question 2

bond, note, bill?

Answer 2

treasury bond = 20-30yrs
treasury note = 2-10yrs
treasury bill = 1-6months

Question 3

how do bonds generate returns?

Answer 3

principal + coupon payments

Question 4

relationship between bond yields and interest rates?

Answer 4

inverse relationship

interest rates go up, bond yields go down

interest rates go down, bond yields go up

Question 5

how do interest rates impact the bond market?

Answer 5

• interest rates go up
• bond coupons go up
• current bond coupons are now worth less
• therefore, the old bond is worth less, and the price goes down
• therefore, the bond yield goes up

Question 6

relationship between interest rates, bond yields and bond prices?

Answer 6

interest rates go up, bond prices go down, bond yields go up

interest rates to down, bond prices go up, bond yields go down