Corporate Bonds (FRM Part 1 2023 – Book 3 – Chapter 17)

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After completing this reading, you should be able to:
- Describe features of bond trading and explain the behavior of bond yield.
- Describe a bond indenture and explain the role of the corporate trustee in a bond indenture.
- Define high-yield bonds and describe types of high-yield bond issuers and some of the payment features unique to high-yield bonds.
- Differentiate between credit default risk and credit spread risk.
- Describe event risk and explain what may cause it to manifest in corporate bonds.
- Describe the different classifications of bonds characterized by issuer, maturity, interest rate, and collateral.
- Describe the mechanisms by which corporate bonds can be retired before maturity.
- Define recovery rate and default rate, and differentiate between an issue default rate and a dollar default rate.
- Evaluate the expected return from a bond investment and identify the components of the bond's expected return.