Our first ever episode, in which we discuss bonds at length. Topics include bond terminology, how to value them, and key risks. Eligible for 1 hour of CFP CE credit.
To access the CFP CE credit quiz, please navigate to www.cheetahsmash.com. (You'll have to create an account, but you'll be able to use that same account for all future Zebra Smash CE quizzes.)
What’s a bond: definitions, components, etc.
Bond price calculation (semiannual coupon bonds):
…or just use your HP-10BII+ calculator!
Zero coupon bonds: what are they, and why would you buy them?
The myth of reinvestment risk, as commonly propagated (Required reading: http://www.economics-finance.org/jefe/econ/ForbesHatemPaulpaper.pdf)
Prepayment risk, callable bonds and the concept of “yield to worst”
Collateralized debt obligations to mitigate pre-payment risk
Credit risk and credit spreads
Bond enhancements to ease credit risk
Interest rate risk
Duration – we thought about putting this calculation in the show notes, but come on. No one is ever going to ask you that. So instead, here’s the chart that Roger talks about that illustrates return on changes in interest rates on different bond maturities:
Gary Shilling's newsletter will teach you everything you need to know about duration. He's been long duration for 30 years!
- Comparative returns: Long duration bonds vs. stocks since the early 1980s
Thanks again to Gary Shilling's newsletter for this gem!