Question

How do you reply to a discussion post below from a classmate? Please provide an answer or additional comments to the discussion. Thank you in advance!

Bonds are securities that are issued or sold to the public by corporations and governments and are a vital source of income. The value of a bond depends on the present value of its coupons and the present value of the face amount. You can determine the price of the bond and the yield by applying the discounted cash flow formulas. Bonds are typically interest only loans and the features are listed in the indenture. The bond’s value is determined by the bond’s maturity periods, face value, coupon, and market interest rates for similar bonds. Bond values largely depend on interest rates because bond prices and interest rates always move in opposite directions.

Most bonds are traded over the counter with little transparency. This makes it difficult to obtain updated prices on bonds. Bonds are quoted at the clean price, with accrued interest removed. One will actually pay the dirty price. Inflation affects interest rates, yields, and returns. Bonds are rated by Moody’s and Standard & Poor’s (S&P). These companies rate according to the creditworthiness of the corporation or government entity. I remember some years ago when the United States rating had declined from AAA to AA+. At the time, I knew their credit had taken a hit, but now I understand in greater detail.

Answer 1

Comments in italics after each line

Bonds are securities that are issued or sold to the public by corporations and governments and are a vital source of income.
Not necessarily a vital source of income but they are less riskier than equities and give a steady source of income

The value of a bond depends on the present value of its coupons and the present value of the face amount. You can determine the price of the bond and the yield by applying the discounted cash flow formulas.
Correct, the value of the bonds can be calculated by discounting the future cash flows (including the principal payment at the end) at the yield to maturity

Bonds are typically interest only loans and the features are listed in the indenture.
There could be zero coupon bonds which do not pay interest but they will be available at a discounted price upfront, and pay the face value at maturity

The bond’s value is determined by the bond’s maturity periods, face value, coupon, and market interest rates for similar bonds. Bond values largely depend on interest rates because bond prices and interest rates always move in opposite directions.
Yes, the yields, coupon and maturity period determine the bonds value. True that interest rates and value of bonds are negatively correlated

Most bonds are traded over the counter with little transparency. This makes it difficult to obtain updated prices on bonds.
This is not true everywhere, for example the NYSE has a very active bond market with liquidity, and updated prices are easily available.

Bonds are quoted at the clean price, with accrued interest removed. One will actually pay the dirty price. Inflation affects interest rates, yields, and returns.
All this is true

Bonds are rated by Moody’s and Standard & Poor’s (S&P). These companies rate according to the creditworthiness of the corporation or government entity. I remember some years ago when the United States rating had declined from AAA to AA+. At the time, I knew their credit had taken a hit, but now I understand in greater detail.
That is the country rating, but each bond will have a different rating depending on the issuer and the features of the bond, which defines its credit rating