8.S: Summary
- Page ID
- 83743
\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)
Congratulations ‒ You Have Finished Chapter 8 ‒ Introduction to Bonds
You have reached the end of chapter 8, Introduction to Bonds. In this chapter, you have:
- Been introduced to the definition of bonds, their advantages and disadvantages, their risks versus reward characteristics, and their historical returns
- Explored the inverse relationship of interest rates and bond prices, a relationship that causes much confusion to many individuals in and out of the industry
- Examined various characteristics of bonds including maturity date, par value (aka face value), call provisions, bond quotes, and the principles of bond price behavior
- Reviewed the various types of bonds from the least risky (Treasury bonds) to the most risky (non-investment grade, aka junk bonds)
- Explored the methods by which bonds are rated on the basis of their probability of default
You should now be able to:
- Describe the various components, characteristics, benefits, advantages, and disadvantages of bonds and bond investing
- Explain the inverse relationship of bond prices and interest rates and how a bond could be selling at a premium or a discount to its par value (aka face value)
- Outline the major bond types and their risk/return profiles
- Identify and explain the method by which bonds are rated on the basis of their probability of default
We Are Halfway Through Our Investigation into the World of Bonds
In our next chapter, we will introduce the calculations necessary to compare and contrast bond yields. We will also learn a technique to assign a value to a bond that should look vaguely familiar, namely the Discounted Cash Flow Model. Hey, maybe bonds are really not as boring as they seem! (Ah, sorry. Yes, they are.) See you in our next chapter, Bond Yields and Valuations.