Question 1

What is Holding Period Return (HPR)?

Accepted Answer

The total return earned on an investment over the period it is held. It accounts for coupon income received plus any change in the bond's price, divided by the purchase price.

Question 2

What is Coupon Rate?

Accepted Answer

The annual interest rate paid by the bond issuer on the bond's face value. For example, a 10% coupon on a UGX 1,000,000 face value bond pays UGX 100,000 per year.

Question 3

What is Yield to Maturity (YTM)?

Accepted Answer

The total return anticipated if the bond is held until it matures. It considers the current market price, coupon payments, and time to maturity. It's the internal rate of return (IRR) of the bond.

Question 4

What is Face Value (Par Value)?

Accepted Answer

The nominal value of a bond, typically UGX 1,000,000 for Ugandan government bonds. This is the amount repaid to the investor at maturity.

Question 5

What is Clean Price vs Dirty Price?

Accepted Answer

The clean price is the bond's market price without accrued interest. The dirty price (or settlement price) includes accrued interest since the last coupon payment. Investors pay the dirty price when buying a bond.

Question 6

What is Accrued Interest?

Accepted Answer

The interest that has accumulated on a bond since the last coupon payment date. When you buy a bond between coupon dates, you pay the seller this accrued interest on top of the clean price.

Question 7

What is Treasury Bill (T-Bill)?

Accepted Answer

A short-term government debt security with a maturity of one year or less. T-Bills are sold at a discount to face value and do not pay periodic coupons — the return comes from the difference between purchase price and face value at maturity.

Question 8

What is Treasury Bond (T-Bond)?

Accepted Answer

A long-term government debt security with a maturity typically ranging from 2 to 20 years. T-Bonds pay semi-annual or annual coupon interest and return the face value at maturity.

Question 9

What is Maturity Date?

Accepted Answer

The date on which the bond's principal (face value) is repaid to the investor. After maturity, the bond ceases to exist and no further coupon payments are made.

Question 10

What is Duration?

Accepted Answer

A measure of a bond's sensitivity to interest rate changes. Higher duration means the bond's price will move more when interest rates change. It's expressed in years and helps investors assess interest rate risk.

Question 11

What is Annualised Return?

Accepted Answer

The geometric average return earned per year over a given period. It normalises returns of different holding periods so they can be compared on an equal basis.

Question 12

What is Secondary Market?

Accepted Answer

The market where previously issued bonds are bought and sold between investors. Prices in the secondary market fluctuate based on supply, demand, and interest rate changes.