If im not wrong bond we always calculate in p4 is same which means interest is paid out same through out the bond matures and whole principal is repaid at the maturity date.
However in the discussion of convexity and duration, it says that sensitivity of bond price is dependent on redemption dates. And bond which pay higher coupons mature sooner compared to those which pay lower coupons even if redemption of both bondd are same.
I do not quite get this part. How would a bond mature sooner that pay higher coupon when redemption dates are same ?
Redemption dates are like mature dates and bonds are meant to pay interest till redemption date.
Whether or not higher or lower coupons are paid, shouldnt redemption dates for both bonds be same ?
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Bond and redemption dates
7y ago#1I do not really understand you - if a bond matures sooner then the redemption date is sooner also. Bonds mature at the date of redemption.
Have you watched my free lectures on duration, because I explain about the difference between bonds and the sensitivity, with examples?
According to the kaplan textbook, it says that
"Duration measures the average time it takes for a bond to pay its coupons and principal and therefore measures the redemption period of a bond. It recognizes that bond which pay higher coupons effectively mature sooner compared to bondd which pay lower coupons even if redemption dates of the bond are the same"
My question is that for example, if two bondd have the same redemption dates, and if bond A pays higher coupon while bond B pays lower coupon amount, how can A mature earlier than B when both redemltion dates(maturity duration) are same ?
Just now both bonds in the example has same redemption dates and bond are meant to pay fixed coupon with the fixed redemption date. then how a coupon that pays higher coupon simply mature faster ??? When redemption dates are predetermined already ????
Is it like a there are different types of bond ? Like for example above, bond B pays fixed amount of coupon regularly until the predetermined redemption date while bond A may have predetermined redemption date like bond b but it may mature sooner(even if predetermined redemption date are still left) if it hits the total coupon amount that has been paid ?
7y ago#3I ask you again - have you watched my free lectures?
You cannot expect me to type out my lectures here :-)
This forum does not exist to explain the Kaplan book :-)
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