Fixed Income Securities: Bonds
|
|
- Hugh O’Connor’
- 6 years ago
- Views:
Transcription
1 Economics 173A and Management 183 Financial Markets Fixed Income Securities: Bonds Updated 4/24/17
2 Bonds Debt Security corporate or government borrowing Also called a Fixed Income Security Covenants or Indenture define the contract (this can be, often is, complex); violation initiates a Call. 2 types of Payments: interest principal Interest payments are based on the Coupon Principal payment is the Face
3 Bonds The Coupon is a Percent of the Face: The coupon rate ( CR ). It is fixed by the indenture. It is Not discount rate ( DR ). The Face is the Bond s principal. The amount that will be paid at Term. It is not the market value of the Bond. The Term is the original time of the loan. The Maturity is how long, until what date, until the Face will be paid. At Maturity, the borrower/issuer will pay the Face and the last Coupon payment.
4 Bond Basics Fixed Income Securities: A security such as a bond that pays a specified cash flow over a specific period. Fixed Income Securities vs. Common Stock Fixed Claim High Priority on cash flows Tax Deductible for the borrower Fixed Maturity No Management Control Residual Claim Lowest Priority on cash flows Not Tax Deductible for the borrower Infinite life Management Control Bonds Hybrids (Combinations of debt and equity) Common Stock
5 Bond Analysis Characteristics Types: mortgage, callable, convertible, senior or subordinated, floating rate, zero coupon. Coupon Dates of Coupon Payments Sinking Funds? Credit Rating Pricing present value of future cash flows Yields: Coupon Yield = Coupon / Price YTM = the DR that makes the NPV of CF s = 0 RCYTM = Compound all CFs to Term and do a CAGR Sensitivity to Time, i.e. maturity Sensitivity to changes in interest rates
6 Treasury Bills, Notes, & Bonds Bills 90 days to 6 months Notes 1 year up to 10 years Bonds to 30 years Bond & Note: Face (denomination) of $1,000; quotes in $100 s Bills: Face = $10,000. Discounted and quoted at Yield. Bond & Note: Coupon (rate) paid semi-annually Prices quoted in points (of face) + 1 / 32 No default / credit risk
7 US Treasury Bonds Rates Maturity Month 3.36 % 8.08 % 2 bps 81 bps 6 Month 3.23 % 8.14 % 4 bps 94 bps 2 Year 3.53 % 8.32 % 40 bps 1.21 % 3 Year 3.82 % 8.41 % 87 bps 1.40 % 5 Year 4.41 % 8.44 % 1.69 % 1.77 % 10 Year 4.84 % 8.51 % 2.71 % 2.24 % 30 Year 5.43 % 8.51 % 3.56 % 2.89 %
8
9 Corporate Bonds Maturity 2/30 spread 2 yrs 5 yrs 10 yrs 30 yrs Jan bps Jan bps Jan bps Jan bps Jan bps Jan bps Jan bps Jan bps Jan bps Jan bps
10 Bond Pricing As with all Financial Assets The price is a Present Value of the expected cash flows discounted at the appropriate (relative to risk) discount (interest) rate.
11 Coupon Payments Relative to other types of securities, bonds produce cash flows that an analyst can predict with a high degree of precision. Fixed rate Variable rate Zero coupons Consols consolidated annuities - perpetuities introduced in 1751.
12 Related Return Concepts APR t n APY CAGR substitute FV Annual Rate r = years = compounding periods: annual =1, monthly =12, daily = 360 Annual Yield = (1 + AAAAAA/nn) nn 1 the APY = APR if n =1 solve for r in Eqn 1: FV=PV(1+r) t = PV(1 + AAAAAA/nn) nnnn = PV(1 + AAAAAA) tt recall that if n=1 then APR = APY
13 Example We invest $ years later we have $150. Calculate the following: Total Return $ 150 HPR ( ) = = 50% Annualized HPR ( /tt )-1 CAGR same as above
14 Bond Pricing DCF Technique P B T t= C t Face t (1 + r) 1 (1 + r) = + T T P B = Price of the bond C t = interest or coupon payments; ordinary annuity portion of the cashflows T = number of periods to maturity r = discount rate F = $ 1,000 paid at Term
15 Bond Pricing: an 8% 10 year Bond at 6%. C t = $ 80 annual annuity F T = $ 1,000 at term T = 10 periods r = 6% (Annual compounding) 10 Σ t =1 P = 80 + B (1+.06) t P B = $1, (1+.06) 10
16 Three Bonds in a 10 percent world Insert Figure 4-6 here.
17 Bond Pricing Zero Coupon Bonds Bond price = PV(principal) = par value ( 1+ r ) T Consols Zero Face, perpetual annuity Bonds anuity cash flow Bond price = PV(annuity) = t t= 1 ( 1+ r) annuity cash flow = r this is capitalizing a cash flow
18 Bond Yields Yield to Maturity: The discount rate that makes the present value of a bond s payments equal to its price, or NPV = 0 or the IRR (internal rate of return) from holding bond till maturity. 3 year bond with interest payment of $100, principal of $1,000; Use Excel Goal Seek to find the DR that makes the PV of the CFS equal to: $1,100 $1,000, and $ 900,
19 RCYTM Holding the Bond to maturity and reinvesting the Coupons: Example 3 year bond with interest payment of $100, Face of $1,000, DR is 10% Calculate the PV of the CFs at 10% Calculate the Future Compounded CFs Calculate the CAGR
20 Bond Yields Prices and Yields (required rates of return) have an inverse relationship When yields get very high the value of the bond will be very low When yields approach zero, the value of the bond approaches the sum of the cash flows
21 Price Yield
22 Bond Risks Price Risks Default risk Interest rate risk Convenience Risks Call risk Reinvestment rate risk Marketability risk
23 Default Risk The income stream from bonds is not riskless unless the investor can be sure the issuer will not default on the obligation. Rating companies Moody s Investor Service Standard & Poor s Duff and Phelps Fitch Kroll
24 Default Risk Rating Categories Investment Grade Bonds Speculative Grade Bonds S&P Moody s Very High Quality AAA, AA Aaa, Aa High Quality A, BBB A, Baa Speculative BB, B Ba, B Very Poor CCC, CC, C, D Caa, Ca, C, D
25 Coupon Yield: YTM: Bond Yields Annual coupon divided by Bond Price. the DR that brings the PV(future CFs) equal to the Bond s Price RCYTM: The CAGR using the Bond Price as the PV and the accumulated, compounded funds at Maturity ( M ) as the FV. Recall that CAGR = TT FFFF PPPP -1
26 Investment Basics When analyzing investment returns, we need a complete transaction, i.e. a full circle investment an open and a close. The Typical Case We OPEN the investment with a Buy at P 0 which we could think of as I 0, the initial investment. We CLOSE the investment with a Sell at P T. Between time = 0 and T, we may need to add interceding Cash Flows any investment proceeds derived from them. Our annualized return is, like the AHPR or CAGR: (P T / P 0 ) (1/T) -1 Simple case
27 Forward Rates term years r at year (1 + r ) = (1 + r ) (1 + r ) (1 + r ) / (1 + r ) = (1 + r ) One-year rate one year from now (1 + r ) = (1 + r ) (1 + r ) (1 + r ) / (1 + r ) = (1 + r ) One-year rate two years from now
Economics 173A and Management 183 Financial Markets
Economics 173A and Management 183 Financial Markets Fixed Income Securities: Bonds Bonds Debt Security corporate or government borrowing Also called a Fixed Income Security Covenants or Indenture define
More informationA Guide to Investing In Corporate Bonds
A Guide to Investing In Corporate Bonds Access the corporate debt income portfolio TABLE OF CONTENTS What are Corporate Bonds?... 4 Corporate Bond Issuers... 4 Investment Benefits... 5 Credit Quality and
More informationI. Asset Valuation. The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset.
1 I. Asset Valuation The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset. 2 1 II. Bond Features and Prices Definitions Bond: a certificate
More informationFixed income security. Face or par value Coupon rate. Indenture. The issuer makes specified payments to the bond. bondholder
Bond Prices and Yields Bond Characteristics Fixed income security An arragement between borrower and purchaser The issuer makes specified payments to the bond holder on specified dates Face or par value
More informationChapter 4. Characteristics of Bonds. Chapter 4 Topic Overview. Bond Characteristics
Chapter 4 Topic Overview Chapter 4 Valuing Bond Characteristics Annual and Semi-Annual Bond Valuation Reading Bond Quotes Finding Returns on Bond Risk and Other Important Bond Valuation Relationships Bond
More informationBond Valuation. Capital Budgeting and Corporate Objectives
Bond Valuation Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Bond Valuation An Overview Introduction to bonds and bond markets» What
More informationFinancial Markets Econ 173A: Mgt 183. Capital Markets & Securities
Financial Markets Econ 173A: Mgt 183 Capital Markets & Securities Financial Instruments Money Market Certificates of Deposit U.S. Treasury Bills Money Market Funds Equity Market Common Stock Preferred
More informationI. Introduction to Bonds
University of California, Merced ECO 163-Economics of Investments Chapter 10 Lecture otes I. Introduction to Bonds Professor Jason Lee A. Definitions Definition: A bond obligates the issuer to make specified
More informationBond Valuation. FINANCE 100 Corporate Finance
Bond Valuation FINANCE 100 Corporate Finance Prof. Michael R. Roberts 1 Bond Valuation An Overview Introduction to bonds and bond markets» What are they? Some examples Zero coupon bonds» Valuation» Interest
More informationCHAPTER 5 Bonds and Their Valuation
5-1 5-2 CHAPTER 5 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk Key Features of a Bond 1 Par value: Face amount; paid at maturity Assume $1,000 2 Coupon
More informationValuing Bonds. Professor: Burcu Esmer
Valuing Bonds Professor: Burcu Esmer Valuing Bonds A bond is a debt instrument issued by governments or corporations to raise money The successful investor must be able to: Understand bond structure Calculate
More informationChapter 5. Valuing Bonds
Chapter 5 Valuing Bonds 5-2 Topics Covered Bond Characteristics Reading the financial pages after introducing the terminologies of bonds in the next slide (p.119 Figure 5-2) Bond Prices and Yields Bond
More informationBonds and Their Valuation
Chapter 7 Bonds and Their Valuation Key Features of Bonds Bond Valuation Measuring Yield Assessing Risk 7 1 What is a bond? A long term debt instrument in which a borrower agrees to make payments of principal
More informationChapter 5. Interest Rates and Bond Valuation. types. they fluctuate. relationship to bond terms and value. interest rates
Chapter 5 Interest Rates and Bond Valuation } Know the important bond features and bond types } Compute bond values and comprehend why they fluctuate } Appreciate bond ratings, their meaning, and relationship
More informationBond Prices and Yields
Bond Characteristics 14-2 Bond Prices and Yields Bonds are debt. Issuers are borrowers and holders are creditors. The indenture is the contract between the issuer and the bondholder. The indenture gives
More informationKEY CONCEPTS AND SKILLS
Chapter 5 INTEREST RATES AND BOND VALUATION 5-1 KEY CONCEPTS AND SKILLS Know the important bond features and bond types Comprehend bond values (prices) and why they fluctuate Compute bond values and fluctuations
More informationChapter 5. Bonds, Bond Valuation, and Interest Rates
Chapter 5 Bonds, Bond Valuation, and Interest Rates 1 Chapter 5 applies Time Value of Money techniques to the valuation of bonds, defines some new terms, and discusses how interest rates are determined.
More informationCHAPTER 14. Bond Prices and Yields INVESTMENTS BODIE, KANE, MARCUS. Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 14 Bond Prices and Yields INVESTMENTS BODIE, KANE, MARCUS McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. INVESTMENTS BODIE, KANE, MARCUS 14-2 Bond Characteristics
More informationCHAPTER 14. Bond Characteristics. Bonds are debt. Issuers are borrowers and holders are creditors.
Bond Characteristics 14-2 CHAPTER 14 Bond Prices and Yields Bonds are debt. Issuers are borrowers and holders are creditors. The indenture is the contract between the issuer and the bondholder. The indenture
More informationCHAPTER 4 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk
4-1 CHAPTER 4 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk 4-2 Key Features of a Bond 1. Par value: Face amount; paid at maturity. Assume $1,000. 2. Coupon
More informationFixed Income Investment
Fixed Income Investment Session 1 April, 24 th, 2013 (Morning) Dr. Cesario Mateus www.cesariomateus.com c.mateus@greenwich.ac.uk cesariomateus@gmail.com 1 Lecture 1 1. A closer look at the different asset
More informationReading. Valuation of Securities: Bonds
Valuation of Securities: Bonds Econ 422: Investment, Capital & Finance University of Washington Last updated: April 11, 2010 Reading BMA, Chapter 3 http://finance.yahoo.com/bonds http://cxa.marketwatch.com/finra/marketd
More informationCHAPTER 8. Valuing Bonds. Chapter Synopsis
CHAPTER 8 Valuing Bonds Chapter Synopsis 8.1 Bond Cash Flows, Prices, and Yields A bond is a security sold at face value (FV), usually $1,000, to investors by governments and corporations. Bonds generally
More informationCHAPTER 9 DEBT SECURITIES. by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA
CHAPTER 9 DEBT SECURITIES by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA LEARNING OUTCOMES After completing this chapter, you should be able to do the following: a Identify issuers of debt securities;
More informationCopyright 2004 Pearson Education, Inc. All rights reserved. Bonds
Copyright 2004 Pearson Education, Inc. All rights reserved. Bonds What is a Bond? Debt securities that may pay a rate of interest based upon the face amount or par value of the bond Bond investors receive
More informationACF719 Financial Management
ACF719 Financial Management Bonds and bond management Reading: BEF chapter 5 Topics Key features of bonds Bond valuation and yield Assessing risk 2 1 Key features of bonds Bonds are relevant to the financing
More informationCredit Risk II. Bjørn Eraker. April 12, Wisconsin School of Business
Wisconsin School of Business April 12, 2012 More on Credit Risk Ratings Spread measures Specific: Bloomberg quotes for Best Buy Model of credit migration Ratings The three rating agencies Moody s, Fitch
More informationFocus on. Fixed Income. Member SIPC 1 MKD-3360L-A-SL EXP 31 JUL EDWARD D. JONES & CO, L.P. ALL RIGHTS RESERVED.
Focus on Fixed Income www.edwardjones.com Member SIPC 1 5 HOW CAN I STAY ON TRACK? 4 HOW DO I GET THERE? 1 WHERE AM I TODAY? MY FINANCIAL NEEDS 3 CAN I GET THERE? 2 WHERE WOULD I LIKE TO BE? 2 Our Objectives
More informationCorporate Finance. Dr Cesario MATEUS.
Corporate Finance Dr Cesario MATEUS www.cesariomateus.com Session 1 06.02.2015 Module Introduction to Corporate Finance The Objective Function in Corporate Finance Present Value and Related Metrics Risk
More informationStudy Session 16. Fixed Income Analysis and Valuation
Study Session 16 Fixed Income Analysis and Valuation 332 Study Session 16 Fixed Income Analysis and Valuation Fixed Income: Analysis and Valuation 56. Valuation of Debt Securities Fixed Income Investments
More informationFixed Income Update: Structuring Portfolios for a Rising Interest Rate Environment
Fixed Income Update: Structuring Portfolios for a Rising Interest Rate Environment February 16, 2017 Thomas S. Sawyer Sawyer Falduto Asset Management, LLC 630-941-8560 tsawyer@sawyerfalduto.com Introduction
More informationQuestions 1. What is a bond? What determines the price of this financial asset?
BOND VALUATION Bonds are debt instruments issued by corporations, as well as state, local, and foreign governments to raise funds for growth and financing of public projects. Since bonds are long-term
More informationDebt markets. International Financial Markets. International Financial Markets
Debt markets Outline Instruments Participants Yield curve Risks 2 Debt instruments Bank loans most typical Reliance on private information Difficult to transfert to third party Government and commercial
More informationMS-E2114 Investment Science Lecture 2: Fixed income securities
MS-E2114 Investment Science Lecture 2: Fixed income securities A. Salo, T. Seeve Systems Analysis Laboratory Department of System Analysis and Mathematics Aalto University, School of Science Overview Financial
More informationChapter Six. Bond Markets. McGraw-Hill /Irwin. Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Six Bond Markets Overview of the Bond Markets A bond is is a promise to make periodic coupon payments and to repay principal at maturity; breech of this promise is is an event of default carry
More informationCHAPTER 14. Bond Prices and Yields INVESTMENTS BODIE, KANE, MARCUS. Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 14 Bond Prices and Yields McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 14-2 Bond Characteristics Bonds are debt. Issuers are borrowers and holders are
More informationAn Introduction to Bonds
An Introduction to Bonds Agenda Bond basics Different types of bonds Bond features Yield and tax considerations Bond risks Credit quality Bond investing strategies and client suitability Defining Characteristics
More informationStudy Session 16. Fixed Income Analysis and Valuation
Study Session 16 Fixed Income Analysis and Valuation Fixed Income: Analysis and Valuation 56. Valuation of Debt Securities Fixed Income Investments LOS 56.b Describe CFAI p. 448, Schweser p. 87 Valuation
More informationCorporate Finance. Dr Cesario MATEUS.
Corporate Finance Dr Cesario MATEUS www.cesariomateus.com Session 1 13.03.2015 Module Introduction to Corporate Finance The Objective Function in Corporate Finance Present Value and Related Metrics Risk
More informationA CLEAR UNDERSTANDING OF THE INDUSTRY
A CLEAR UNDERSTANDING OF THE INDUSTRY IS CFA INSTITUTE INVESTMENT FOUNDATIONS RIGHT FOR YOU? Investment Foundations is a certificate program designed to give you a clear understanding of the investment
More informationFixed income for your portfolio
Fixed income for your portfolio November 2017 2 Fixed income for your portfolio Defence Fixed income investments such as bonds are widely used in portfolios to enhance income and compliment low risk interest
More informationFUNDAMENTALS OF CREDIT ANALYSIS
FUNDAMENTALS OF CREDIT ANALYSIS 1 MV = Market Value NOI = Net Operating Income TV = Terminal Value RC = Replacement Cost DSCR = Debt Service Coverage Ratio 1. INTRODUCTION CR = Credit Risk Y.S = Yield
More informationChapter 11. Section 2: Bonds & Other Financial Assets
Chapter 11 Section 2: Bonds & Other Financial Assets Bonds as Financial Assets Bonds are basically loans, or IOUs, that represent debt that the government or a corporation must repay to an investor. Typically
More informationBOND NOTES BOND TERMS
BOND NOTES DEFINITION: A bond is a commitment by the issuer (the company that is borrowing the money) to pay a rate of interest for a pre-determined period of time. By selling bonds, the issuing company
More informationBONDS AND CREDIT RATING
BONDS AND CREDIT RATING 2017 1 Typical Bond Features The indenture - a written agreement between the borrower and a trust company - usually lists Amount of Issue, Date of Issue, Maturity Denomination (Par
More information1. An option that can be exercised any time before expiration date is called:
Sample Test Questions for Intermediate Business Finance Ch 20 1. An option that can be exercised any time before expiration date is called: A. an European option B. an American option C. a call option
More informationFirst Trust Intermediate Duration Preferred & Income Fund Update
1st Quarter 2015 Fund Performance Review & Current Positioning The First Trust Intermediate Duration Preferred & Income Fund (FPF) produced a total return for the first quarter of 2015 of 3.84% based on
More informationCOLLATERALIZED LOAN OBLIGATIONS (CLO) Dr. Janne Gustafsson
COLLATERALIZED LOAN OBLIGATIONS (CLO) 4.12.2017 Dr. Janne Gustafsson OUTLINE 1. Structured Credit 2. Collateralized Loan Obligations (CLOs) 3. Pricing of CLO tranches 2 3 Structured Credit WHAT IS STRUCTURED
More informationRisk and Term Structure of Interest Rates
Risk and Term Structure of Interest Rates Economics 301: Money and Banking 1 1.1 Goals Goals and Learning Outcomes Goals: Explain factors that can cause interest rates to be different for bonds of different
More informationMIDTERM EXAMINATION Spring 2009 ACC501- Business Finance (Session - 1)
http://vudesk.com MIDTERM EXAMINATION Spring 2009 ACC501- Business Finance (Session - 1) Question No: 1 The debt a firm has (as a percentage of assets); the is the degree of financial leverage. More; greater
More informationRISKS ASSOCIATED WITH INVESTING IN BONDS
RISKS ASSOCIATED WITH INVESTING IN BONDS 1 Risks Associated with Investing in s Interest Rate Risk Effect of changes in prevailing market interest rate on values. As i B p. Credit Risk Creditworthiness
More informationCHAPTER 16: MANAGING BOND PORTFOLIOS
CHAPTER 16: MANAGING BOND PORTFOLIOS 1. The percentage change in the bond s price is: Duration 7.194 y = 0.005 = 0.0327 = 3.27% or a 3.27% decline. 1+ y 1.10 2. a. YTM = 6% (1) (2) (3) (4) (5) PV of CF
More informationBond Analysis, Portfolio Strategies, and Trade Executions AAII Washington, DC Chapter December 6, 2008
Bond Analysis, Portfolio Strategies, and Trade Executions AAII Washington, DC Chapter December 6, 2008 Presented by Bob Pugh, CFA President, Insight Wealth Management www.insightwealth.com This slide show,
More informationA guide to investing in high-yield bonds
A guide to investing in high-yield bonds What you should know before you buy Are high-yield bonds suitable for you? High-yield bonds are designed for investors who: Can accept additional risks of investing
More informationJEM034 Corporate Finance Winter Semester 2017/2018
JEM034 Corporate Finance Winter Semester 2017/2018 Lecture #1 Olga Bychkova Topics Covered Today Review of key finance concepts Present value (chapter 2 in BMA) Valuation of bonds (chapter 3 in BMA) Present
More informationTreasury Policy. Purpose of this policy:
Purpose of this policy: The purpose of this policy is to set out appropriate parameters as deemed fit by the Board for ELEXON s banking arrangements, in order to minimise counterparty risk, while delivering
More informationCFAspace. CFA Level I. Provided by APF. Academy of Professional Finance 专业金融学院 FIXED INCOME: Lecturer: Nan Chen
CFAspace Provided by APF CFA Level I FIXED INCOME: Introduction to the Valuation of Debt Securities Lecturer: Nan Chen Framework Estimate CFs: Coupon and Principal 1. Steps in Bond Valuation Process Determine
More informationDebt. Last modified KW
Debt The debt markets are far more complicated and filled with jargon than the equity markets. Fixed coupon bonds, loans and bills will be our focus in this course. It's important to be aware of all of
More informationHIGH-YIELD CORPORATE BONDS
HIGH-YIELD (Agreement of Purchaser) Account Name Account Number Rep. No. HY I/We represent and agree as follows: Piper Jaffray Copy Terms. I or me means the client(s). You means Piper Jaffray. High-Yield
More information2/22/2016. Compound Interest, Annuities, Perpetuities and Geometric Series. Windows User
2/22/2016 Compound Interest, Annuities, Perpetuities and Geometric Series Windows User - Compound Interest, Annuities, Perpetuities and Geometric Series A Motivating Example for Module 3 Project Description
More informationBonds explained. Member of the London Stock Exchange
Bonds explained Member of the London Stock Exchange Killik & Co We pride ourselves on being a relationship firm. Each client has their own dedicated Broker, who acts as the single point of contact to provide
More informationFIN 684 Fixed-Income Analysis Corporate Debt Securities
FIN 684 Fixed-Income Analysis Corporate Debt Securities Professor Robert B.H. Hauswald Kogod School of Business, AU Corporate Debt Securities Financial obligations of a corporation that have priority over
More informationINVESTMENTS Class 17: The Credit Market Part 1: Modeling Default Risk. Spring 2003
15.433 INVESTMENTS Class 17: The Credit Market Part 1: Modeling Default Risk Spring 2003 The Corporate Bond Market 25 20 15 10 5 0-5 -10 Apr-71 Apr-73 Mortgage Rates (Home Loan Mortgage Corporation) Jan-24
More informationChapter 3: Debt financing. Albert Banal-Estanol
Corporate Finance Chapter 3: Debt financing Albert Banal-Estanol Debt issuing as part of a leverage buyout (LBO) What is an LBO? How to decide among these options? In this chapter we should talk about
More informationLecture 3. Chapter 4: Allocating Resources Over Time
Lecture 3 Chapter 4: Allocating Resources Over Time 1 Introduction: Time Value of Money (TVM) $20 today is worth more than the expectation of $20 tomorrow because: a bank would pay interest on the $20
More informationNational Ratings Definitions
National Ratings Definitions AM Best Rating Descriptor Definition A++ Superior Assigned to companies that have, in our opinion, a superior ability to meet their ongoing insurance obligations. A++ Superior
More informationLecture #1. Introduction Debt & Fixed Income. BONDS LOANS (Corporate) Chapter 1
Lecture #1 Introduction Debt & Fixed Income BONDS LOANS (Corporate) Chapter 1 Fed, State, Local BONDS: Six sectors: U.S. Treasury Sector o Issued by U.S. Government o T-Bills, Notes, Bonds o The largest
More informationChapter 02 Test Bank - Static KEY
Chapter 02 Test Bank - Static KEY 1. The present value of $100 expected two years from today at a discount rate of 6 percent is A. $112.36. B. $106.00. C. $100.00. D. $89.00. 2. Present value is defined
More informationSavings and Investment. July 23, 2014
Savings and Investment July 23, 2014 Personal Financial Planning Process The personal financial planning process includes four main elements: Setting financial goals; Financial assessment; Developing and
More informationChapter. Corporate Bonds. Corporate Bonds. Corporate Bond Basics, I. Corporate Bond Basics, II. Corporate Bond Basics, III. Types of Corporate Bonds
Chapter 18 Corporate Bonds Corporate Bonds Our goal in this chapter is to introduce the specialized knowledge concerning trading corporate bonds. Money managers who buy and sell corporate bonds possess
More information[Image of Investments: Analysis and Behavior textbook]
Finance 527: Lecture 19, Bond Valuation V1 [John Nofsinger]: This is the first video for bond valuation. The previous bond topics were more the characteristics of bonds and different kinds of bonds. And
More information3. Time value of money. We will review some tools for discounting cash flows.
1 3. Time value of money We will review some tools for discounting cash flows. Simple interest 2 With simple interest, the amount earned each period is always the same: i = rp o where i = interest earned
More informationUnderstanding Interest Rates
Understanding Interest Rates Leigh Tesfatsion (Iowa State University) Notes on Mishkin Chapter 4: Part A (pp. 68-80) Last Revised: 14 February 2011 Mishkin Chapter 4: Part A -- Selected Key In-Class Discussion
More informationING MVA ANNUITY A Single Premium Deferred Annuity (Standard Form # Nonqualified; may vary by state and not available in all states.
An Annuity Illustration using ING MVA ANNUITY (Standard Form #03502 8-00 Nonqualified; may vary by state and not available in all states.) Designed for: Mr. Wise Presented by: Financial Professional..,
More informationMUNICIPAL BONDS IN TEXAS and THE BOND SALE PROCESS
MUNICIPAL BONDS IN TEXAS and THE BOND SALE PROCESS Government Treasurers Organization of Texas Winter Seminar December 5, 2017 9:30 AM 10:30 AM Robert W. Baird & Co. Incorporated ( Baird ) is providing
More informationCALIFORNIA BONDS: 101
CALIFORNIA BONDS: 101 A Citizen s Guide to General Obligation Bonds 2016 EDITION JOHN CHIANG CALIFORNIA STATE TREASURER SECTION 1 BONDS 101: Q&A Q. What is a municipal bond? A. A bond is a loan. There
More informationBBK3413 Investment Analysis
BBK3413 Investment Analysis Topic 4 Fixed Income Securities www.notes638.wordpress.com Content 7.1 CHARACTERISTICS OF BOND 7.2 RISKS ASSOCIATED WITH BONDS 7.3 BOND PRICING 7.4 BOND YIELDS 7.5 VOLATILITY
More informationLecture 4. The Bond Market. Mingzhu Wang SKKU ISS 2017
Lecture 4 The Bond Market Mingzhu Wang SKKU ISS 2017 Bond Terminologies 2 Agenda Types of Bonds 1. Treasury Notes and Bonds 2. Municipal Bonds 3. Corporate Bonds Financial Guarantees for Bonds Current
More informationFixed income. income investors. Michael Korber Head of Credit. August 2009
Fixed income Old lessons re-learned for income investors Michael Korber Head of Credit August 2009 Role of fixed income in a portfolio The role of fixed income in a portfolio a fixed or floating rate of
More information3. Time value of money
1 Simple interest 2 3. Time value of money With simple interest, the amount earned each period is always the same: i = rp o We will review some tools for discounting cash flows. where i = interest earned
More informationPart III : Debt Securities. o Bond Prices and Yields o Managing Bond Portfolios
Part III : Debt Securities o Bond Prices and Yields o Managing Bond Portfolios Bond Prices and Yields Chapter 0 Bond Characteristics A long-term debt instrument in which a borrower agrees to make payments
More informationFIN 6160 Investment Theory. Lecture 9-11 Managing Bond Portfolios
FIN 6160 Investment Theory Lecture 9-11 Managing Bond Portfolios Bonds Characteristics Bonds represent long term debt securities that are issued by government agencies or corporations. The issuer of bond
More informationFINA 1082 Financial Management
FINA 1082 Financial Management Dr Cesario MATEUS Senior Lecturer in Finance and Banking Room QA259 Department of Accounting and Finance c.mateus@greenwich.ac.uk www.cesariomateus.com Contents Session 1
More informationMunicipal Bond Basics
Weller Group LLC Timothy Weller, CFP CERTIFIED FINANCIAL PLANNER 6206 Slocum Road Ontario, NY 14519 315-524-8000 tim@wellergroupllc.com www.wellergroupllc.com Municipal Bond Basics March 06, 2016 Page
More informationChapter 4. Discounted Cash Flow Valuation
Chapter 4 Discounted Cash Flow Valuation Appreciate the significance of compound vs. simple interest Describe and compute the future value and/or present value of a single cash flow or series of cash flows
More informationPutnam Stable Value Fund Reporting As of December 31, 2018
Putnam Stable Value Fund Reporting As of December 31, 2018 Portfolio Characteristics Stable Value Strategy Assets* 7,399,754,477.60 Stable Value Fund Assets 6,866,780,247.97 Average Quality Aa3/AA-/AA-
More informationFixed-Income Securities: Defining Elements
The following is a review of the Fixed Income: Basic Concepts principles designed to address the learning outcome statements set forth by CFA Institute. Cross-Reference to CFA Institute Assigned Reading
More informationQuantifying credit risk in a corporate bond
Quantifying credit risk in a corporate bond Srichander Ramaswamy Head of Investment Analysis Beatenberg, September 003 Summary of presentation What is credit risk? Probability of default Recovery rate
More information: Corporate Finance. Corporate Decisions
380.760: Corporate Finance Lecture 6: Corporate Financing Professor Gordon M. Bodnar 2009 Gordon Bodnar, 2009 Corporate Decisions Investment decision vs. financing decision until now we have focused on
More informationBonds 101. Michigan Association of School Boards. November 10, PFM Financial Advisors LLC. 555 Briarwood Circle Suite 333
Bonds 101 Michigan Association of School Boards November 10, 2017 PFM Financial Advisors LLC 555 Briarwood Circle Suite 333 P: 734-994-9700 F: 734-994-9710 Ann Arbor, MI 48108 www.pfm.com PFM 1 Overview
More informationFinancial Market Analysis (FMAx) Module 1
Financial Market Analysis (FMAx) Module 1 Pricing Money Market Instruments This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Institute for Capacity
More informationChapter 3 Mathematics of Finance
Chapter 3 Mathematics of Finance Section R Review Important Terms, Symbols, Concepts 3.1 Simple Interest Interest is the fee paid for the use of a sum of money P, called the principal. Simple interest
More informationPowered by TCPDF (www.tcpdf.org) 10.1 Fixed Income Securities Study Session 10 LOS 1 : Introduction (Fixed Income Security) Bonds are the type of long term obligation which pay periodic interest & repay
More informationCDO Market Overview & Outlook. CDOs in the Heartland. Lang Gibson Director of Structured Credit Research March 25, 2004
CDO Market Overview & Outlook CDOs in the Heartland Lang Gibson Director of Structured Credit Research March 25, 24 23 featured record volumes despite diminishing arbitrage Global CDO Growth: 1995-23 $
More informationISS RATHORE INSTITUTE. Strategic Financial Management
1 ISS RATHORE INSTITUTE Strategic Financial Management Solution Booklet By CA. Gaurav Jain 100% Conceptual Coverage Not a Crash Course More than 400 Questions covered in Just 30 Classes Complete Coverage
More information4. D Spread to treasuries. Spread to treasuries is a measure of a corporate bond s default risk.
www.liontutors.com FIN 301 Final Exam Practice Exam Solutions 1. C Fixed rate par value bond. A bond is sold at par when the coupon rate is equal to the market rate. 2. C As beta decreases, CAPM will decrease
More informationDallas Austin Chicago Houston Miami New York San Antonio San Diego
January 2017 DIMMIT COUNTY, TEXAS Financing 101 Dallas Austin Chicago Houston Miami New York San Antonio San Diego Financing Team Issuer A state, political subdivision, agency or authority which borrows
More informationUTILITY SYSTEM IMPROVEMENT FINANCING
UTILITY SYSTEM IMPROVEMENT FINANCING Stauder, Barch & Associates Ann Arbor 1 UTILITY SYSTEM FINANCING OPTIONS POSSIBLE FUNDING SOURCES Utility System Reserves Grants Bond Financing (Including SRF) Installment
More informationGuide to investing in municipal securities
Guide to investing in municipal securities What you should know before you buy Before you buy an investment, it is important to review your financial situation, net worth, tax status, investment objectives,
More informationFinQuiz Notes
Reading 6 The Time Value of Money Money has a time value because a unit of money received today is worth more than a unit of money to be received tomorrow. Interest rates can be interpreted in three ways.
More information