By Frank J. Fabozzi
An utilized method of figuring out bond markets.
Through its utilized method, Fabozzi's Bond Markets prepares readers to research the bond marketplace and deal with bond portfolios with out getting slowed down within the theory.
This variation has been streamlined and up to date with new content material, and lines total improvements in keeping with prior editions’ reader and teacher suggestions.
Read Online or Download Bond Markets, Analysis and Strategies (8th Edition) PDF
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Additional info for Bond Markets, Analysis and Strategies (8th Edition)
An estimate of the appropriate required yield The expected cash flows for some financial instruments are simple to compute; for others, the task is more difficult. The required yield reflects the yield for financial instruments with comparable risk, or alternative (or substitute) investments. The first step in determining the price of a bond is to determine its cash flows. , an option-free bond2) consist of 1. periodic coupon interest payments to the maturity date 2. the par (or maturity) value at maturity Technically, this is not the proper way for adjusting the annual interest rate.
No consideration is given to the capital gain that the investor will realize when a bond is purchased at a discount and held to maturity; nor is there any recognition of the capital loss that the investor will realize if a bond purchased at a premium is held to maturity. The time value of money is also ignored. Yield to Maturity In the first section of this chapter, we explained how to compute the yield or internal rate of return on any investment. The yield is the interest rate that will make the present value Chapter 3 Measuring Yield 39 of the cash flows equal to the price (or initial investment).
5 If the market requires a larger (smaller) spread, the price of a floater will trade below (above) par. If the coupon rate is restricted from changing to the reference rate plus the spread because of the cap, then the price of a floater will trade below par. 6 The security from which the inverse floater is created is called the collateral. From the collateral, two bonds are created: a floater and an inverse floater. This is depicted in Exhibit 2-4. The two bonds are created such that (1) the total coupon interest paid to the two bonds in each period is less than or equal to the collateral’s coupon interest in each period, and (2) the total par value of the two bonds is less than or equal to the collateral’s total par value.
Bond Markets, Analysis and Strategies (8th Edition) by Frank J. Fabozzi