Fixed income and risk analysis

© All Rights Reserved

11 visualizações

Fixed income and risk analysis

© All Rights Reserved

- Money Markets
- Capstone Student Guide
- June 2017 - Answer to Q1 by Sir Hamza
- Revised Study of Monetary Statisticsy SBP
- financial enrg
- 7762_CreditAnalysis
- SSRN-id294799
- Glossary of Business Jargon
- PD-04
- How To Calculate Bond Cost S
- Combined KIM for Liquid & Debt Schemes
- BEP 11 (1)
- IFS Asgnmnt
- c18
- Week 3 Problems(1)
- ch14_Longterm Liability
- FANFM16
- Bond Market Fundamentals Dec2012
- RBI Rate Cut
- Bond Pricing and Portfoli Analysis

Você está na página 1de 26

Features of Debt

Securities

1

Coupon rate structures

Floating rate securities

Accrued interest

Options embedded in a bond

Borrow funds to purchase bonds (repo)

2

The market practice is to quote the price of a

bond as a percentage of its par value

Example: Suppose a bond has a par value of

$1,000

quoted as 100, i.e., 100% of par value

If the bond price is $950, the bond is said to be

selling at 95, i.e., 95% of par value

And if the bond price is $1,050, the bond is trading

at 105, i.e., 105% of par value

A bond is said to be trading at a discount

if it sells below its par value, e.g., at 95

A bond is trading at par if it sells at its par

value, i.e., at 100

A bond is said to be trading at a premium

if it sells above its par value, e.g., at 105

A bond sells above or below its par value

depending on the levels of interest rates

dollar price of a bond, we first compute the

price per US$1 of par value, which is then

multiplied by the bond par value to get the

dollar price of the bond

Quoted price Price per US$1 of par value Par value Dollar price

(1)

(2)

(3) (4) = (2) (3)

86 1/4

0.86250

$50,000 $43,125

110 3/8

1.10375

$200,000 $220,750

5

bondholder

Coupon coupon rate par value

Example : coupon rate 5%, par value $2,500

coupon 5% $2,500 $125

annual rate

The coupon rate is specified for a bond, along with its

maturity date

In both Canada and the U.S., bonds typically pay coupons in

two equal semiannual installments

Step up notes

Securities where the coupon rate increases

(or steps up) over time

Single step up note: where there is only

one increase (or step up) in the coupon rate

rate is 4.5% for Year 1 and 5.5% annually for the

remaining 3 years of the life of this note

multiple (i.e., more than one) increases in the

coupon rate

coupon schedule

5%

5.25%

5.60%

from 1/1/2013 to 12/31/2013

from 1/1/2014 to 12/31/2014

8

Bonds whose interest payments are deferred

for several years, i.e., no interest payment

during the deferred period

At the end of the deferred period, the issuer

pays higher periodic interests (than that

would otherwise have been paid) to the

bondholder as a compensation

securities, floaters) have a coupon rate reset

periodically according to the coupon formula:

Treasury bill rate), a stock index (e.g., the S&P 500), a

foreign exchange rate, the price of crude oil, and the

inflation rate etc.

For example, the Consumer Price Index (CPI) is the

reference rate for inflation linked (or inflation

indexed) bonds

10

amount paid above the reference rate

Coupon rate = U.S. Treasury bill rate + 120 basis

points

etc.

the coupon rate = 4% + 1.2% = 5.2%

11

value

Coupon rate = U.S. AAA rate - 60 basis

points

coupon rate = 5% - 0.6% = 4.4%

12

A cap is the maximum coupon rate paid on a

floater

Example: The coupon formula is

coupon rate is 10%, not 10.5% (= 8.5% + 2%)

13

A floor is the minimum coupon rate paid on a

floater

Example: The coupon formula is

coupon rate is 3%, not 2.75% (= 3.25% - 0.5%)

14

In-class exercise 1

formula is: reference rate + 60 basis points

with a cap of 5.50%

Reference rate Coupon rate

First reset date

4.50%

?

Second reset date

5.00%

?

Third reset date

4.85%

?

15

In-class exercise 2

formula is: reference rate + 25 basis points

with a floor of 2.75%

First reset date

3.00%

?

Second reset date

2.80%

?

Third reset date

2.25%

?

16

Floating rate securities where the coupon rate

moves in the opposite direction from the

reference rate

The coupon formula is:

where K and L are fixed values

Example: Suppose K is 25%, L is 2.5, the reference

rate is 8%, then the coupon rate is 25% - 2.5 8% =

5%

A cap and/or floor can be imposed on an inverse

floater

17

Accrued interest

Accrued interest is the interest earned by the

bond seller between the last coupon payment

date and the bond settlement date

by the seller

Last

coupon

payment

date

(A)

Settlement date

(B)

Next

coupon

payment

date

(C)

18

Accrued interest

Full price (or dirty price) is the agreed upon

price for the bond plus the accrued interest

$960, accrued interest is $15, so the full price

paid by the buyer is ($960 + $15) = $975

upon price only, without the accrued interest

is $960

accrued interest

19

Embedded options

specified call price

scheduled principal payment on, e.g., mortgage

backed securities

Call risk

Prepayment risk

what would happen to the bond price?

20

Embedded options

The right to put (i.e., sell back) a bond at a

specified put price

The right to convert or exchange a bond for a

number of common shares

Convertible bonds

the bond prices, as we will see in later

chapters

21

Borrow funds to

purchase bonds

Repurchase agreement (repo)

The

Buyer

(B)

same securities

Sells

securities

The investor

(A)

Receives

cash

Time 0

The

Buyer

Pays (a higher) (B)

repurchase price

including repo

rate

Time 1

22

Repo

investor (A) and the buyer (B): A effectively

uses securities as collateral to borrow

funds from B to finance her purchase of

some other assets

Overnight repo: the term of the loan is one

day

Term repo: the term of the loan is more than

one day

The interest rate on the loan is called the

repo rate

23

Repo

Special repo rate

24

Repo

Repo (from the investor (A)s perspective):

agrees to sell the securities and buy them

back, i.e., borrow funds

Reverse repo (from the buyer (B)s

perspective): agrees to buy the securities

first and sell them back later, i.e., make a

loan

Repo is primarily for institutional investors

to meet their short term financing needs

25

Repo

need to pay back an investment bank on a

14 day $94.8 million 3% repo loan?

14

$94.8 million (1 3%

) $94.9106 million

360

26

- Money MarketsEnviado porNadeem Ganai
- Capstone Student GuideEnviado poradivitya
- June 2017 - Answer to Q1 by Sir HamzaEnviado porHamza Abdul haq
- Revised Study of Monetary Statisticsy SBPEnviado porDilshad72
- financial enrgEnviado porThaiseer Mohammed
- 7762_CreditAnalysisEnviado porAriel Lopez
- SSRN-id294799Enviado pornopat
- Glossary of Business JargonEnviado porDivina Campos
- PD-04Enviado porJairus Rubio
- How To Calculate Bond Cost SEnviado porDesichall748
- Combined KIM for Liquid & Debt SchemesEnviado porSrikanth Swa
- BEP 11 (1)Enviado porVijay Kiran
- IFS AsgnmntEnviado porBenu Makhija
- c18Enviado porqwertqteqrwrqewrqwreqw
- Week 3 Problems(1)Enviado porNeelam Goel
- ch14_Longterm LiabilityEnviado por2Ng0
- FANFM16Enviado porMohammed Aadil
- Bond Market Fundamentals Dec2012Enviado porcaxap
- RBI Rate CutEnviado porHimanshu Jhamb
- Bond Pricing and Portfoli AnalysisEnviado porasish89ce
- FIN 370 Final Exam Guide (New 2017)Enviado porleonardjonh168
- EFFECTIVE APPROACH TO BA II PLUS CALCULATOR.pdfEnviado porCA Bharath Bhushan D V
- Ener CareEnviado porJenny Quach
- Corporate FinanceEnviado pormuhammad farhan
- How to create an amortization schedule.docxEnviado porKatrina
- Stock MarketEnviado porCatherine Masitsa Omondi
- Why Did Countries Adopt Gold StandardEnviado porNur Hidayah Jalil
- MCGFC - okEnviado porMarco Aletti
- Bond Valuation 2018Enviado porKeegan
- New Text DocumentEnviado porsunil unnithan

- 3531 Midterm Formula SheetEnviado poranajagal87
- MBA Course OutlineEnviado poranajagal87
- Hypotesis Testing SheetEnviado poranajagal87
- Box Plot Selection CriteriaEnviado poranajagal87
- Benzimidazole AbstractEnviado poranajagal87
- ECON3210-O Syllabus Winter2015Enviado poranajagal87
- TheLernerIndexOfMonopolyPowerOrig PreviewEnviado porakhilyerawar7013

- Lenovo Case Study.pdfEnviado porAngel Portosa
- jurnalEnviado porDodik Septian
- Demand and Supply Vicious circle of PovertyEnviado porVioMLetty
- IndexEnviado porarjeegee
- GBCA014 Evolution Spreads LoResEnviado porCarlo Thomes
- Mrunal.org-Strategy Political Science for UPSC Mains Exam With Booklist and Tips by ToppersEnviado porIlias
- Portfolio ManagementEnviado porgautam_gt2
- Chapter 18 Financial Markets Test BankEnviado porNicholas
- Bfs Foreclosed Properties for Sales as of 2017-01-10Enviado porRen Macatangay
- RF1 FORM- Phil HealthEnviado porjtravel
- UntitledEnviado porapi-27875564
- Australian WoolEnviado porP. Paarth
- Change of Bank Details Form 19-05-16 Sample CopyEnviado porvenkatnimms
- Analysis on Balance of Payments in India for Last 5 YearsEnviado porRoopavathy Mani
- Chapter 3 MARKET ASPECT 3.1 General Market Description 3.1.2 ClinicalEnviado porgotguests
- Arvind Bhatt.pdfEnviado porhariprasadr5199
- Waste Prevention for Sustainable Resource and Waste ManagementEnviado por-
- 127041 eBook ChaptersEnviado porabhijeet_rahate36
- General Knowledge 2013Enviado porAbhijeet Kulshreshtha
- Transportation Statistics: barge and towboat operating costsEnviado porBTS
- Summary JournalEnviado porMutiara Shifa
- Ch 8 Exam QuestionsEnviado porcooter010186
- micro.docxEnviado porumut
- Sec Bgouravranjanbusinessleader 120927144343 Phpapp01Enviado porkavitachordiya86
- rpgtEnviado porAfiq Afham
- Paul Samuelson on the History of Economic Analysis Selected Essays by Steven G. Medema and Anthony M. C. Waterman.pdfEnviado porBrainy12345
- Declaration on Social Progress and Development, December 1969Enviado porRobert Pollard
- Excel 5.19-6 Due Apr 24 - RusincovitchEnviado porMichael Clark
- muslim-ummah.pptEnviado porhumaira
- 2015 BOC Annual ReportEnviado porMarius Angara

## Muito mais do que documentos

Descubra tudo o que o Scribd tem a oferecer, incluindo livros e audiolivros de grandes editoras.

Cancele quando quiser.