Practice Question Set: Bond Yields and Return Calculations

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Chapter 11. Bond Yields and Return Calculations Practice Question set covers the following learning objectives:

* Distinguish between gross and net realized returns, and calculate the realized return for a bond over a holding period including reinvestments.

* Define and interpret the spread of a bond, and explain how a spread is derived from a bond price and a term structure of rates.

* Define, interpret, and apply a bond’s yield-to-maturity (YTM) to bond pricing.

* Compute a bond’s YTM given a bond structure and price.

* Calculate the price of an annuity and a perpetuity.

* Explain the relationship between spot rates and YTM.

* Define the coupon effect and explain the relationship between coupon rate, YTM, and bond prices.

* Explain the decomposition of the profit and loss (P&L) for a bond position or portfolio into separate factors including carry roll-down, rate change, and spread change effects.

* Explain the following four common assumptions in carry roll-down scenarios: realized forwards, unchanged term structure, unchanged yields, and realized expectations of short-term rates; and calculate carry roll down under these assumptions.

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