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7.1 Introduction

  • The idea that market prices will adjust until there are no opportunities for arbitrage underpins the valuation of fixed-income securities, derivatives, and other financial assets.
  • The purpose of this chapter is to develop a set of valuation tools for bonds that are consistent with this notion.

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.