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Fixed Income Bond Terms

In this article we review the key terms and definitions used in fixed income.

What are the most important fixed income terms?

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 free Fixed Income Fundamentals course.

 

Bond Fixed Income terms glossary theme

 

Annuity:

An annuity is a series of payments in equal time periods, guaranteed for a fixed number of years.

Annuity factor:

Present value of $1 paid for each of “t” periods.

Constant perpetuity:

A constant stream of identical cash flows without end.

Correlation:

A statistical measure of how two securities move in relation to each other.

Coupon rate:

The amount of interest received by a bond investor expressed on a nominal annual basis.

Current yield:

The coupon from a bond divided by the market price of the bond, expressed as a percentage.

Discount factor:

The percentage rate required to calculate the present value of a future cash flow.

Expected value:

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.

Growing perpetuity:

A constant stream of cash flows without end that is expected to rise indefinitely.

Moving average:

Mean 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.

Par value:

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

Yield to maturity:

The annual return earned by a bond investor if purchasing a bond today and holding it until maturity.

 

Register now for CFI’s free bond course and learn from our wall street trainers!

 

Additional resources

Thank you for reading CFI’s guide to the most common bond and fixed income terms.  To continue learning and developing your career as a financial analyst, these additional resources will be helpful:

  • Junk bonds
  • Bond issuers
  • Bond pricing
  • Financial modeling

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