CHAPTER 11Fixed-Income Risk
The issue of risk in fixed income securities is somewhat specialized. A large number of concepts and techniques that have been developed for this asset class have limited applicability elsewhere. Although a full treatment is beyond our scope, in this chapter we review a few essential formulas that should be part of every analyst’s toolkit.
A fixed income security can be described by the characteristics of its promised cash flows. A typical bond promises to pay a face value or par value at a definite maturity date, and periodic interest amounts, or coupons, at certain intermediate dates. Typically the coupons are paid semiannually, although by convention the coupon rate is given in annual terms.
Although a typical bond ...