Lecture Financial markets and institutions - Chapter 8 presents the following content: Bond valuation process; relationships between coupon rate, required return, and bond price; explaining bond price movements; sensitivity of bond prices to interest rate movements; bond investment strategies used by investors; return and risk of international bonds.
A bond is a debt instrument requiring the issuer to repay to the lender / investor the amount borrowed plus interest over a specified period of time. A typical bond issue in the United States specifies a fixed date when the amount borrowed is due
This book not only does an outstanding job of introducing basic bond concepts, but also introduces the reader to more sophisticated investing strategies. Sharon Wright does a fantastic job demystifying a subject many people ﬁnd intimidating—this book is not only understandable, but also entertaining and fun. —Brian M. Storms, President, Prudential Investments Ms. Wright has produced an excellent, easy-to-read guide for the novice bond investor. The book is well organized and allows its readers to identify and focus in on the security types most suitable for them....
In the last decade rating-based models have become very popular in credit risk management. These systems use the rating of a company as the decisive variable to evaluate the default risk of a bond or loan. The popularity is due to the straightforwardness of the approach, and to the upcoming new capital accord (Basel II), which allows banks to base their capital requirements on internal as well as external rating systems.
When interest rates fall steadily and continuously, corporations may be able to save money by refunding their
existing bond issues. According to Boyce and Kalotay , the accepted wisdom is to refund a bond issue when interest
rates fall 1% below the coupon rate on the existing bond. However, the refunding decision is in reality a complicated
Chapter 6 introduces you to the world of interest rates and bonds. Though bonds are considered to be among the safest investments available, they are not without risk. The primary risk that bond investors face is the risk that market interest rates will fluctuate. Those fluctuations cause bond prices to move, and those movements affect the returns that bond investors earn. Chapter 6 explains why interest rates vary from one bond to another and the factors that cause interest rates to move.
This paper studies the maturity composition and the term structure of interest rate spreads
of government debt in emerging markets. In the data, when interest rate spreads rise, debt
maturity shortens and the spread on short-term bonds is higher than on long-term bonds.
To account for this pattern, we build a dynamic model of international borrowing with
endogenous default and multiple maturities of debt.
Lecture Money and banking - Lecture 10: Bond pricing and risk presents the following content: Application of present value concept (bond bricing), real vs nominal interest rates, risk, characteristics, measurement.
Lecture Money and banking - Lecture 12 include all of the following: Sources of risk, idiosyncratic, systematic, reducing risk through diversification, hedging risk, spreading risk, bond and bond pricing.
Lecture Money and banking - Lecture 15: Shifts in equilibrium in the bond market and risk presents the following content: Shifts in equilibrium in bond market, bond and risk, default risk, inflation risk, interest rate risk.
In this chapter, students will be able to understand: Describe various types of risk to which investors are exposed, as well as the sources of return; know how to search for an acceptable investment on the basis of risk, total return, and yield; discuss the merits of investing in common stock and be able to distinguish among the different types of stocks;...
The Council of Development Finance Agencies is a national
association dedicated to the advancement of development finance
concerns and interests. CDFA is comprised of the nation’s leading
and most knowledgeable members of the development finance
community representing over 300 public, private, and non-profit
development entities. CDFA communicates with nearly 20,000
development finance stakeholders on a weekly basis.
We study time variation in expected excess bond returns. We run regressions of
one-year excess returns on initial forward rates. We find that a single factor, a
single tent-shaped linear combination of forward rates, predicts excess returns on
one- to five-year maturity bonds with R2 up to 0.44. The return-forecasting factor is
countercyclical and forecasts stock returns. An important component of the returnforecasting
factor is unrelated to the level, slope, and curvature movements described
by most term structure models.
In the previous chapters on risk and return relationships, we have treated securities at a high level of abstraction. We assumed implicitly that a prior, detailed analysis of each security already had been performed, and that its risk and return features had been assessed. in this chapter, we turn now to specific analyses of particular security markets. We examine valuation principles, determinants of risk and return, and portfolio strategies commonly used within and across the various markets.
In this chapter we turn to various strategies that bond portfolio managers can pursue, making a distinction between passive and active strategies. A passive investment strategy takes market prices of securities as fairly set. Rather than attempting to beat the market by exploiting superior information or insight, passive managers act to maintain an appropriate risk–return balance given market opportunities.
This chapter cover the basics of the investing process. We begin by describing how you go about buying and selling securities such as stocks and bonds. Then we outline some important consideration and constraints to kêp in mind as you get more involved in the investing process
The teaching and the practicing of corporate finance are more challenging and exciting
than ever before. The last decade has seen fundamental changes in financial markets and
financial instruments. In the early years of the 21st century, we still see announcements in
the financial press about such matters as takeovers, junk bonds, financial restructuring, initial
public offerings, bankruptcy, and derivatives. In addition, there is the new recognition
of “real” options (Chapters 21 and 22), private equity and venture capital (Chapter 19), and
the disappearing dividend (Chapter 18).