After studying this chapter you should be able to

• Distinguish among the bond's coupon rate, current yield, and yield to maturity.
• Find the market price of a bond given its yield to maturity, find a bond's yield given its price, and demonstrate why prices and yields vary inversely.
• Explain what a yield curve is and why expected short-term interest rates affect its shape.
• Show why bonds exhibit interest rate risk and how interest rate risk affects the shape of the yield curve.
• Understand why investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings.