Bond Pricing

In this final one of our bond duration and convexity lectures, we apply the lessons learned in the previous lecture to start calculating convexity and using it to make more accurate price predictions for bond price changes, whenever interest rates change.

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We conclude our lectures on ‘Duration’, before we move on to ‘Convexity’, with an explanation of ‘Modified Duration’ and its importance in predicting how individual bond prices will change on specific interest rate changes.

In passing, we cover the ‘MDURATION’ Excel function, and also dabble a little in different coupon payment frequencies, such as Annual, Semi-Annual (S/A), and Quarterly.

The full YouTube playlist of Securities Investment 101 lecture videos can be found by clicking here.

Please read our disclaimer.

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Pricing a Bond with Yield To Maturity, Lecture 013, Securities Investment 101

June 14, 2013

In this lecture, we price the same standard bond given three different ratings agency ratings, which has given us three different required overall yields to get from the bond, given the changing levels of risk. After explaining the theory of present valuing the different fixed cashflows, we then use an Excel spreadsheet to calculate the […]

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Introducing Yield To Maturity, Lecture 012, Securities Investment 101

June 11, 2013

In this introductory lecture, we explain the conceptual framework behind ‘Yield To Maturity’ and why it is conceptually different from ‘Flat Yield’. In the next two lectures, we will further explore the ideas put forward in this lecture, and both price a bond, given a yield to maturity input, and calculate a yield to maturity, […]

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