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4.1 Introduction

Any analysis of fixed-rate securities starts with an understanding of their risk and return characteristics.

The yield-to-maturity, or internal rate of return on future cash flows, is of particular focus.

The return on a fixed-rate bond is affected by many factors, such as credit risk (potential default on payments) and interest rate risk (varying coupon reinvestment rate and sale price).

Lesson Wrap-Up

This lesson should leave you able to explain the introduction in a fixed-income context and connect it to the decisions made by issuers, investors, or analysts.

Review Prompts

  1. Explain introduction in your own words.
  2. State one exam-style risk, valuation, or market implication of the introduction.