Course · Act I: Rates Move · Chapter 2
Bond prices and yields
Why bond prices fall when interest rates rise, yield to maturity versus current yield, and what makes a bond trade at a premium or a discount to face value.
Key terms
- Yield to maturity
- The yearly return from buying at today’s price and holding to the end, counting coupons and the move back to face.
- Current yield
- A year’s coupon divided by today’s price. Ignores the gain or loss back to face.
- Premium and discount bonds
- Above face (coupon above market rates) or below face (coupon below). Both drift back to face at maturity.
“Price Down, Yield Up” is part of the full course: 7 puzzles on bond prices and yields. Gullwing and Osprey are fictional banks; the Treasury yields and Fed rates are real. Try this act’s free chapter, “A Loan You Can Sell”, first.
“Price Down, Yield Up” is in Act I: Rates Move. 7 puzzles, unlimited retries.
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