Bond valuations:

Bonds:
- Bonds are units of corporate debt issued by companies and securitized as
tradeable assets.

- Bonds are used by companies, municipalities, states, and sovereign

governments to finance projects and operations. Owners of bonds are
debtholders, or creditors, of the issuer.

- Bond prices are inversely correlated with interest rates: when rates go up,
bond prices fall and vice-versa.

- Bonds have maturity dates at which point the principal amount must be paid
back in full or risk default.

How bonds work in general:

When companies or other entities need to raise money to finance new projects,
maintain ongoing operations, or refinance existing debts, they may issue bonds
directly to investors. The borrower (issuer) issues a bond that includes the terms of
the loan, interest payments that will be made, and the time at which the loaned funds
(bond principal) must be paid back (maturity date). The interest payment (the
coupon) is part of the return that bondholders earn for loaning their funds to the
issuer. The interest rate that determines the payment is called the coupon rate.
The initial price of most bonds is typically set at at par, or face value per individual
bond.
1. Face value (par value) is the money amount the bond will be worth at maturity; it
is also the reference amount the bond issuer uses when calculating interest
payments.
2. The coupon rate is the rate of interest the bond issuer will pay on the face value
of the bond, expressed as a percentage.
3. Coupon dates are the dates on which the bond issuer will make interest
payments. Payments can be made in any interval, but the standard is
semiannual payments.
4. The maturity date is the date on which the bond will mature and the bond issuer
will pay the bondholder the face value of the bond.
5. The issue price is the price at which the bond issuer originally sells the bonds. In
many cases, bonds are issued at par.
Different types of bonds:
Zero-coupon bonds (Z-bonds) do not pay coupon payments and instead are issued
at a discount to their par value that will generate a return once the bondholder is paid
the full face value when the bond matures.
Convertible bonds are debt instruments with an embedded option that allows
bondholders to convert their debt into stock (equity) at some point, depending on
certain conditions like the share price.
Callable bonds also have an embedded option, but it is different than what is found
in a convertible bond. A callable bond is one that can be “called” back by the
company before it matures.
A puttable bond allows the bondholders to put or sell the bond back to the company
before it has matured.
Yield to maturity:

The yield-to-maturity (YTM) of a bond is another way of considering a bond’s price.

YTM is the total return anticipated on a bond if the bond is held until the end of its
lifetime.
It is the internal rate of return of an investment in a bond if the investor holds the
bond until maturity and if all payments are made as scheduled.