Glossary: FI Module 06 — Bond Valuation
| Term | Definition |
|---|---|
| Bond pricing | Determining the present value of a bond’s expected future cash flows |
| Market discount rate | The rate used to discount a bond’s cash flows; reflects the required yield for similar-risk bonds |
| Flat price (clean price) | The quoted bond price excluding accrued interest |
| Full price (dirty price) | The actual settlement price = flat price + accrued interest |
| Accrued interest | The interest earned since the last coupon payment date, owed by buyer to seller |
| Day count convention | The method for counting days to calculate accrued interest (e.g., 30/360, Actual/Actual) |
| Premium bond | A bond trading above par (coupon rate > market discount rate) |
| Par bond | A bond trading at par value (coupon rate = market discount rate) |
| Discount bond | A bond trading below par (coupon rate < market discount rate) |
| Pull to par | The tendency of a bond’s price to converge toward par as maturity approaches |
| Matrix pricing | Estimating a bond’s price using yields of comparable traded bonds; used for illiquid bonds |
| Constant-yield price trajectory | The path a bond’s price follows over time if the yield remains unchanged |
| Settlement date | The date the buyer pays and the seller delivers the bond |
| Ex-coupon date | The date after which the buyer does not receive the next coupon payment |
| Inverse price-yield relationship | The fundamental property that bond prices move inversely to yield changes |
See also: Bond Valuation