Bond Value and Return
All securities can be evaluated in terms of the characteristics common to all assets: value, return, risk, maturity, marketability, liquidity, and taxability. In this and the next two chapters, we will analyze debt securities in terms of these characteristics. In this chapter, we look at how debt instruments (which we will usually refer to here as bonds) are valued and how their rates of return are measured. It should be noted that this chapter is very technical, entailing a number of definitions. Understanding how bonds are valued and their rates determined, though, is fundamental to being able to evaluate and select bonds.
An investor who has purchased a bond can expect ...