From 0 to 1: Bond Theory and Valuation
4.0 (3 ratings)
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From 0 to 1: Bond Theory and Valuation

A zoom-in, zoom-out, connect-the-dots take on FCFF models, Dividend discount models, and equity valuation
4.0 (3 ratings)
Instead of using a simple lifetime average, Udemy calculates a course's star rating by considering a number of different factors such as the number of ratings, the age of ratings, and the likelihood of fraudulent ratings.
480 students enrolled
Created by Loony Corn
Last updated 5/2017
Current price: $12 Original price: $50 Discount: 76% off
3 days left at this price!
30-Day Money-Back Guarantee
  • 4 hours on-demand video
  • Full lifetime access
  • Access on mobile and TV
  • Certificate of Completion

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What Will I Learn?
  • Over 28 lectures and 4 hours of content!
  • Understand the specs of bonds and the relationship between each attributes
  • Learn how to compute Yield, duration, price along with fixed and floating interest rates
  • Compare two bonds based on ratings and features and decide which is better
View Curriculum
  • This course assumes no prior knowledge of accounting or finance

Course Description

A zoom-in, zoom-out, connect-the-dots tour of Bond Theory and Valuation

Let's parse that

  • 'connect the dots': Bonds is an relatively safe investments instrument with steady stream of income. The various attributes of bonds can make it conceptually complex - the various bond options just add on to the complexities. This course makes sure the concepts are made crystal clear.
  • 'zoom in': Getting the details is very important in bond valuation - All attributes influence each other in some way or the other. This course gets the details right where they are important.
  • 'zoom out': Details are important, but not always. This course knows when to switch to the big picture.

What's Covered:

  • Credits: Explained with example what credit is, why is it needed, the borrowers and the lenders.
  • The issuers of Bond: Why are bonds issued, the credit ratings and their importance
  • Attributes of Bond: Grilling down the Bond Certificate to get to the specifics of bonds: Coupon Rates, Principal, Maturity, Duration.
  • Yield Curve: Explanation of what Yield curve represents, the factors that impact the yield, discounting and Yield computation
  • Bond Risks: Interest rate risks, reinvestment risk, liquidity risk
  • Bond Options: Examples relating to put and call options, interest floor options
  • Duration: Modified Duration, Macauley Duration
  • Convexity: Derivation of Convexity, how it eliminates error margin

Using discussion forums

Please use the discussion forums on this course to engage with other students and to help each other out. Unfortunately, much as we would like to, it is not possible for us at Loonycorn to respond to individual questions from students:-(

We're super small and self-funded with only 2 people developing technical video content. Our mission is to make high-quality courses available at super low prices.

The only way to keep our prices this low is to *NOT offer additional technical support over email or in-person*. The truth is, direct support is hugely expensive and just does not scale.

We understand that this is not ideal and that a lot of students might benefit from this additional support. Hiring resources for additional support would make our offering much more expensive, thus defeating our original purpose.

It is a hard trade-off.

Thank you for your patience and understanding!

Who is the target audience?
  • Yep! Business majors and aspiring MBAs
  • Yep! Finance professionals who are rusty on equity valuation
  • Yep! CFA Candidates
  • Yep! Accountants looking to strengthen their applied corporate finance skills
  • Yep! Non-finance professionals, aspiring entrepreneurs looking to understand how companies are valued
Compare to Other Company Valuation Courses
Curriculum For This Course
29 Lectures
You, This Course and Us
1 Lecture 01:47
Credit and Basics of Bond
6 Lectures 01:18:20

Credit is the life-blood of financial markets and has been for centuries. There are various credit instruments available in the market. It is important to understand what credit is and why do people, Government or Corporations require credit.

Preview 16:28

Before going into details of investments in bonds, knowledge about the issuer of bonds is important. The bonds are usually issued by Government and Corporation. They need to be credit-worthy for people to invest in the bonds. This is given through the Bond Ratings

The Origination of Bonds

There are many specific attributes attached to bonds like the issuer, holder, time to maturity, coupon rate, par value, etc. which investors ought to be familiar.

The Specific features of Bonds

A longer time to maturity for a bond would increase the riskiness of the bond and the issuer needs to compensate the investors for this risk. This would impact the Yield of the bond and the Yield Curve represents the market rates for different bond length

The Yield Curve

Discounting of Bond and calculating the Yield of a bond

Bond Yield and an example

Before investing in bonds, investors need to understand the relationship between various features of bonds. The bond interest is related to bond yield and this decides the relation between Price and Par Value

Connection between bond Price, Par Value, interest and Yield
Risks relating to bond investment
4 Lectures 33:48

The bond is accompanies by a coupon rate which can be fixed or floating unless it is a Zero-Coupon bond. Coupon adds to the income of the bond holder but gives rise to reinvestment risk.

Coupon Rates and Reinvestment Risk

Interest Rate risk is the risk that investment value will change with a change in the bond yield. This risk varies for different types of bonds like put and call options

Interest Rate Risk and types of bonds

Price-Yield Curve of Bond is a convex graph. Slope of this graph gives the quantum of Yield which gives the sensitivity to interest rate risk. This risk can be measured in terms of Duration

A teaser into Convexity

Many bonds contain various options for investors and borrowers like the put or call options, conversion options or the floor interest rates option. These make bonds more attractive and also effect the basic features of bonds.

Various options attached bonds
Series of Examples
4 Lectures 32:00

A simple example to compute interest income, total amount at maturity, bond price, yield and the cash flow statement

Interest Rates, bond prices, maturity amount

One level higher in complexity, compute the accrued interest, clean price all including floating interest rates

Accrued interest, Clean Price, floating interest

Few different concepts explained through examples like bond rating and the relation between interest, yield and price.

Bond Rating, comparing two bonds

We will calculate various attributes of bond given the bond duration and understand the impact of bond duration. We will also calculate the value of put and call options.

Bond Duration, Value of Call and Put Options
Up one level with the series of examples
4 Lectures 37:29

Calculate present value of bonds and check if bond is at discount or not

Present Value of Bonds

Deriving the Modified Duration and Macauley Duration from the negative relationship between yield and prices

Negative Relationship between Yield and Price

Understanding Modified Duration and Macauley Duration better with examples

Modified Duration and Macauley Duration

Understanding the Zero Coupon bonds and why they are more volatile. We will also understand Error Margins.

Duration of Zero Coupon Bonds, Error Margins
Bond Convexity
3 Lectures 28:17

To account for error margin in calculating bond price change with a yield change we need bond convexity. The formula for duration needs to include bond convexity to get rid of error margin.

Deriving Bond Convexity

Solve few previous examples using the convexity formula and see how introducing convexity deletes the error margin.

Previous examples using convexity

If we have bond prices we can estimate the duration and convexity using finite-difference approximations of derivatives, i.e. Effective Convexity and Effective Duration. This helps in taking buy or sell decision.

Effective Convexity and Effective Duration
Primer on Net Present Value
7 Lectures 37:18

The idea of Net Present Value (NPV) is one of the most fundamental in all of finance - and it all starts with compound interest.

Compound interest and NPV

NPV and price are related: if NPV > price, the asset is undervalued, and should be bought ASAP! If NPV < price, the asset is overvalued - don't buy it.

NPV and Price

Calculate the NPV of a cash flow in the future. The cash flow is deterministic, btw.

A Simple PV Example

Finding out future value of cash put away today using compounding with risk free rate of return.

Future Value of Present Cash Flow

The higher the compounding frequency on the risk-free instrument, the higher the discount rate.

Semi Annual Compounding

Taken to its limit, compounding could be continuous. This yields the highest possible discount factor, given a certain discount rate.

Continuous Compounding

Calculating the NPV of a stream of cash flows in the future is one of the most common use-cases in all of finance. Its used across bond math as well as corporate finance.

NPV of Stream of Cash Flows
About the Instructor
Loony Corn
4.3 Average rating
5,535 Reviews
42,827 Students
75 Courses
An ex-Google, Stanford and Flipkart team

Loonycorn is us, Janani Ravi and Vitthal Srinivasan. Between us, we have studied at Stanford, been admitted to IIM Ahmedabad and have spent years  working in tech, in the Bay Area, New York, Singapore and Bangalore.

Janani: 7 years at Google (New York, Singapore); Studied at Stanford; also worked at Flipkart and Microsoft

Vitthal: Also Google (Singapore) and studied at Stanford; Flipkart, Credit Suisse and INSEAD too

We think we might have hit upon a neat way of teaching complicated tech courses in a funny, practical, engaging way, which is why we are so excited to be here on Udemy!

We hope you will try our offerings, and think you'll like them :-)