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for our analysis of the universe of potentialinvestment vehicles.The bond is the basic debt security, andthis chapter starts with an overview of theuniverse of bond markets, including Treasury,corporate, and international bonds. We turnnext to bond pricing, showing how bondprices are set in accordance with marketinterest rates and why bond prices changewith those rates. Given this background, wecan compare the myriad measures of bondreturns such as yield to maturity, yield to call,holding-period return, and realized compoundrate of return. We show how bondprices evolve over time, discuss certain taxrules that apply to debt securities, and showhow to calculate after-tax returns. Finally, weconsider the impact of default or credit riskon bond pricing and look at the determinantsof credit risk and the default premium builtinto bond yields. Credit risk is central to bothcollateralized debt obligations and creditdefault swaps, so we examine these instrumentsas well.
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