current yield
tells investors what they will earn from buying a bond and holding it for a year (pmt/price)
YTM
better approximation of anticipated return b/c it equates todays value with the PV of all payments
call feature
PV - original price
FV - call premium
N - callable #
pmt - normal
FIND YTM
expectations theory
interest rates of different maturities are perfect substitutes - indifferent b/w buying 10 year bonds or series of 1 yr bonds (same return)
liquidity premium
tries to compensate you for tying up your money for a longer period
if future short term interest rates are low
they're expected to rise - upward yield curve
interest rate risk
bonds with long maturities are risky; bonds with short maturities are not risky (assuming maturity period = holding period)
reinvestment risk
if holding period is longer than maturity period; proceeds that need to be reinvested is uncertain; uncertainty about future interest rates