In this article we review the key terms and definitions used in fixed income
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Welcome to CFI’s guide to the most important fixed income terms. For a complete understanding of bonds and fixed-income securities, check out our Fixed Income Fundamentals course.
An annuity is a series of payments in equal time periods, guaranteed for a fixed number of years.
The present value of $1 paid for each of “t” periods.
A constant stream of identical cash flows without end.
A statistical measure of how two securities move in relation to each other.
The amount of interest received by a bond investor expressed on a nominal annual basis.
The coupon from a bond divided by the market price of the bond, expressed as a percentage.
The percentage rate required to calculate the present value of future cash flow.
The anticipated value for a given investment. Calculate EV by multiplying each possible outcome by its likelihood of occurring, and then calculate the sum of all those values.
A constant stream of cash flows without end that is expected to rise indefinitely.
Average of time series data (observations equally spaced in time) from several consecutive periods. Called “moving” because it is continually recomputed as new data becomes available.
The principal amount returned to a bond investor, by the issuer, upon maturity.
Time value of money:
The concept that money available now is worth more than the same amount of money available in the future, due to the fact that money available now can be invested and thereby increased in the future.
The annual return earned by a bond investor if purchasing a bond today and holding it until maturity.
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