Investing in the Bond Market

Pamela P. Drake, Frank J. Fabozzi and Francesco A. Fabozzi

Chapter 22 in Introduction to Finance:Financial Management and Investment Management, 2022, pp 643-682 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We discuss investing in the bond market in this chapter, beginning with the basics of how to value bonds. The valuation of option-free bonds is a simple application of time value of money mathematics. What we mean by “option-free” is that the bonds do not have call, conversion, or put features. We do, however, touch upon the valuation of convertible bonds to demonstrate the role of embedded options in valuation. We then explain the two major risks with investing in bonds: credit risk and interest rate risk. The last part of the chapter covers bond investment strategies.

Keywords: Financial Management; Investment Management; Derivatives; Common Stock; Bonds; Company Analysis; Entrepreneurial Finance; Financial Instruments; Financial System; Financial Statements; Time Value of Money; Yields; Present Value; Future Value; Financial Strategy; Dividend Policy (search for similar items in EconPapers)
JEL-codes: G1 G3 N2 O16 (search for similar items in EconPapers)
Date: 2022
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