Topic: PRM Exam

Current Yield of a Bond

Current Yield The current yield of a bond measures the returns an investor can expect if he holds the bond for a period of one year. It is calculated as the annual interest received divided by the current price of the bond. Current Yield = Annual Interest / Current...

Calculate Clean and Dirty Price of a Bond

We know that the clean price of the bond is the offered price of the bond excluding the accrued interest, while the dirty price is clean price plus the accrued interest. In most bond markets, the general convention is to quote the clean price. However, since the bond...

Day Count Conventions

The day count conventions are used to determine how the interest calculations are performed for different fixed-income securities. It is commonly expressed as a fraction. The numerator is usually 30 or actual. The numerator is usually, 360, 365 or actual. The day...

How to Read Bond Quotes?

In the bond markets, the prices are quotes as a percentage of par. For example, assume that the par value of a bond is $100. If the quoted offer price for the bond is $98.75, this means that the investor will have to pay $98.75 for the bond with $100 nominal value....

How to Read Bond Tables?

Once you know how to read bond quotes, you can easily interpret bond price tables given in newspapers or websites. We will take the example of Treasury bond prices, as shown in the table below: Rate: The first column shows the rate, i.e., the coupon paid by the bond....

Treasury STRIPS

STRIPS stands for Separate Trading of Interest and Principal Securities. These are zero-coupon securities that trade at a significant discount to the face value. STRIPS were introduced by the US government in 1985. Since they are backed by the government, they have...

Backwardation and Contango

This video provides a quick review of the concept of contango and backwardation. These two are opposite of each other. A market is said to be in Backwardation, when the prices of a futures contract is trading below the expected spot prices at the contract maturity. A...

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