Determinants of the price of a bond


Question 1: Explain the difference between calling a bond and bond refunding.

Question 2: Identify the three most important determinants of the price of a bond. Describe the effect of each.

Question 3: Given a change in the level of interest rates, discuss how two major factors will influence the relative change in price for individual bonds.

Question 4: Briefly describe two indenture provisions that can affect the maturity of a bond.

Question 5: Explain the differences in taxation of income from municipal bonds, from U.S. Treasury bonds, and from corporate bonds.

Question 6: For several institutional participants in the bond market, explain what type of bond each is likely to purchase and why.

Question 7: Why should investors be aware of the trading volume for bonds in their portfolio?

Question 8: What is the purpose of bond ratings?

Question 9: Based on the data in Exhibit discuss the makeup of the Japanese bond market and how and why it differs from the U.S. market.

Exhibit:

2010 ( e )
Total Value    Percent of Total
A. U.S. Dollars
Sovereign    5,309,688 34.5
Quasi & Foreign Govt.    1,939,190 12.6
Securitized/Collateralized    4,247,750 27.6
Corporate    2,801,053 18.2
High-Yield/Emerging Mkt.    1,108,109 7.1
Total    15,405,790 100.0

B. Euros
Sovereign    6,914,941 64.1
Quasi & Foreign Govt.    852,231 7.9
Securitized/Collateralized    1,326,892 12.3
Corporate    1,564,222 14.5
High-Yield/Emerging Mkt.    140,241 1.3
Total    10,798,527 100.0

C. Japanese Yen
Sovereign    4,659,743 81.4
Quasi & Foreign Govt.    429,337 7.5
Securitized/Collateralized    5,724 0.1
Corporate    635,420 11.1
High-Yield/Emerging Mkt.    - 0.0
Total    5,730,224 100.0

D. Pound Sterling
Sovereign    792,517 50.2
Quasi & Foreign Govt.    202,076 12.8
Securitized/Collateralized    94,723 6.0
Corporate    472,037 29.9
High-Yield/Emerging Mkt.    17,366 1.1
Total    1,578,719 100.0

Question 10: Discuss the positives and negatives of investing in a government agency issue rather than a straight Treasury bond.

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Finance Basics: Determinants of the price of a bond
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