This chapter covers the basics of bonds, bond yields, duration, and immunization. In this chapter we saw that:

1. Bonds are commonly distinguished according to whether they are selling at par value or at a discount or premium relative to par value. Bonds with a price greater than par value are said to be selling at a premium; bonds with a price less than par value are said to be selling at a discount.
2. There are three different yield measures: coupon yield or rate, current yield, and yield to maturity. Each is calculated using a specific equation, and which is the biggest or smallest depends on whether the bond is selling at a discount or premium.
3. Important relationships among bond prices, maturities, coupon rates, and yields are described by Malkiel's five bond price theorems.
4. A stated yield to maturity is almost never equal to an actually realized yield because yields are subject to bond price risk and coupon reinvestment rate risk. Bond price risk is the risk that a bond sold before maturity must be sold at a price different from the price predicted by an originally stated yield to maturity. Coupon reinvestment risk is the risk that bond coupons must be reinvested at yields different from an originally stated yield to maturity.
5. To account for differences in interest rate risk across bonds with different coupon rates and maturities, the concept of duration is widely applied. Duration is a direct measure of a bond's price sensitivity to changes in bond yields.
6. Bond portfolios are often created for the purpose of preparing for a future liability payment. Portfolios formed for such a specific purpose are called dedicated portfolios. When the future liability payment of a dedicated portfolio is due on a known date, that date is called the portfolio's target date.
7. Minimizing the uncertainty of the value of a dedicated portfolio's future target date value is called immunization. A strategy of matching a bond portfolio's duration to the target maturity date accomplishes this goal.