Contemporary Investments: Chapter 9 Chapter 9 FIXED INCOME SECURITIES: VALUATION AND RISKS Why are bonds viable investment alternatives? What are the risks.

Slides:

Advertisements

Similar presentations

CHAPTER 4 BOND PRICES, BOND YIELDS, AND INTEREST RATE RISK.

Advertisements

Introduction to Bond Markets

Hossein Abdoh Tabrizi Maysam Radpour June Table of Contents Bonds; risk & return tradeoff Maturity effect; interest rate volatility risk Duration.

Bond Yields Fixed Income Securities. Outline Sources of Return for a Bond Investor Measures of Return/Yield Nominal Yield Current Yield Yield to Maturity.

7-1 CHAPTER 7 Bonds and Their Valuation Key features of bonds Bond valuation(price) Measuring yield(return) Assessing risk.

Chapter 10. Properties & Pricing of Financial Assets

Chapter 11 Bond Yields and Prices. Learning Objectives Calculate the price of a bond. Explain the bond valuation process. Calculate major bond yield measures,

Contemporary Investments: Chapter 2 Chapter 2 FUNDAMENTALS OF RISK AND RETURN What are the sources of investment returns? How are investment returns measured?

Managing Bond Portfolios

Pricing Fixed-Income Securities. The Mathematics of Interest Rates Future Value & Present Value: Single Payment Terms Present Value = PV  The value today.

1 Chapter 14 - Bonds A promise to repay a sum of money on a fixed date, together with interest, usually over the life of the loan Why buy bonds? –Steady.

1. 2 Duration Duration is the weighted average of the times that the principal and interest payments are made. where t is the time of payment C t is the.

Bond Prices and Yields Chapter 14. Face or par value Coupon rate - Zero coupon bond Compounding and payments - Accrued Interest Indenture Bond Characteristics.

Chapter 4 Pricing Fixed-Income Securities

CHAPTER 14 Bond Prices and Yields. Face or par value Coupon rate – Zero coupon bond Compounding and payments – Accrued Interest Indenture Bond Characteristics.

©2009, The McGraw-Hill Companies, All Rights Reserved 3-1 McGraw-Hill/Irwin Chapter Three Interest Rates and Security Valuation.

Interest Rates and Bond Valuation 1 BOND BASICS IBM $1,000 LOAN Interest each year at coupon rate$1,000 at maturity.

Chapter 8 Valuing Bonds. 8-2 Chapter Outline 8.1 Bond Cash Flows, Prices, and Yields 8.2 Dynamic Behavior of Bond Prices 8.3 The Yield Curve and Bond.

Investments: Analysis and Behavior Chapter 15- Bond Valuation ©2008 McGraw-Hill/Irwin.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Interest Rates and Bond Valuation Lecture 6.

6-1 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Bond Prices and Yields Fixed income security  An arragement between borrower and purchaser  The issuer makes specified payments to the bond holder.

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 14 Bond Prices and Yields.

1 Chapter Twelve Principles of Bond Valuations and Investments McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.

Chapter 4 Portfolio Management of Bonds Viewing recommendations for Windows: Use the Arial TrueType font and set your screen area to at least 800 by 600.

Bond Prices and Yields.

Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 10.

1 Bond:Analysis and Strategy Chapter 9 Jones, Investments: Analysis and Management.

Chapter 9 Debt Instruments Quantitative Issues.

PRICING SECURITIES Chapter 6

Financial Markets and Institutions

CHAPTER 5 BOND PRICES AND RISKS. Copyright© 2003 John Wiley and Sons, Inc. Time Value of Money A dollar today is worth more than a dollar in the future.

Finance 2009 년 1 학기 Chapter 6 Interest Rates and Bond Valuation.

©2009, The McGraw-Hill Companies, All Rights Reserved 3-1 McGraw-Hill/Irwin Chapter Three Interest Rates and Security Valuation.

Pricing of Bonds. Outline  Time Value of Money Concepts  Valuation of Fixed Income Securities  Pricing zero coupon bonds  Price/Yield Relationship.

CHAPTER 14 Investments Bond Prices and Yields Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin.

Chapter 8 Jones, Investments: Analysis and Management

Chapter 12 Supplement A: Fixed-Income Securities Chapter 12 Supplement A Fixed-Income Securities.

Chapter 10 Bond Prices and Yields. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Bond Characteristics Face or __________.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Bond Prices and Yields CHAPTER 9.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Bond Prices and Yields CHAPTE R 9.

CHAPTER ELEVEN Bond Yields and Prices CHAPTER ELEVEN Bond Yields and Prices Cleary / Jones Investments: Analysis and Management.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

Chapter 14 In-Class Notes. Background on Bonds Bonds: long-term debt securities issued by government agencies or corporations that are collateralized.

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bond Prices and Yields CHAPTER 10.

Class Business Upcoming Homework. Bond Page of the WSJ and other Financial Press Jan 23, 2003.

Chapter 18 - The Analysis and Valuation of Bonds.

Investment Valuations Value of Investment = PV of expected future CFs Factors affecting value –Cash Flows Amount (size) and timing –Discount Rate Risk.

Bond Valuation and Risk

Problems Consider the following Bond Structure Face ValueInterest Rate (%) Maturity (Years) Current Price

1 1 Ch14 – MBA 566 Bond Price, Yields, and Returns Different Bond Types Bond Price Bond Yield Bond Returns Bond Risk Structure.

1 Bond Valuation Corporate Finance Dr. A. DeMaskey.

Chapter 6 Valuing Bonds. Copyright ©2014 Pearson Education, Inc. All rights reserved Bond Cash Flows, Prices, and Yields Bond Terminology –Bond.

Chapter 11 Managing Bond Portfolios 1. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Interest Rate Risk A change in market.

 The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 14-1 Bond Prices and Yields Chapter 14.

Chapter 5 :BOND PRICES AND INTEREST RATE RISK Mr. Al Mannaei Third Edition.

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Bond Prices and Yields Chapter 14.

Bond Valuation Chapter 7. What is a bond? A long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific.

1 FIN 2802, Spring 08 - Tang Chapter 15: Yield Curve Fina2802: Investments and Portfolio Analysis Spring, 2008 Dragon Tang Lecture 11 Bond Prices/Yields.

Bond Valuation Coupon Rate Annual interest payment, as a percentage of face value. Bond Security, that obligates the issuer to make specified payments.

Analysis and Management of Bond

Copyright © 1999 Addison Wesley Longman

Bond Yields and Prices Chapter 17

CHAPTER 5 BOND PRICES AND RISKS.

INVESTMENT ANALYSIS & PORTFOLIO MANAGEMENT

6 Fixed-Income Securities: Characteristics and Valuation.

Bonds and interest rates

BIJAY CHALISE, SWARNA MAHARJAN, DIPESH PANDEY

Presentation transcript:

Contemporary Investments: Chapter 9 Chapter 9 FIXED INCOME SECURITIES: VALUATION AND RISKS Why are bonds viable investment alternatives? What are the risks faced by bond investors? How bonds are priced? What are the basic bond pricing theorems? How can interest rate risk be measured? How can credit risk be evaluated? How are bond risk and required return related?

Contemporary Investments: Chapter 9 Why bonds? Income Potential for capital gains Paper versus real losses Diversification Tax advantages

Contemporary Investments: Chapter 9 Figure 9.1 – Yield on Long-Term Treasury Bonds vs. the Dividend Yield from the S&P500

Contemporary Investments: Chapter 9 Risks associated with investing in bonds Credit risk Interest rate risk Reinvestment risk Purchasing power risk Call risk Liquidity risk Foreign exchange risk

Contemporary Investments: Chapter 9 Bond valuation Basics of bond pricing –Identifying the bond’s cash flows –Bond price is present value of its cash flows –Semiannual coupons –Accrued interest

Contemporary Investments: Chapter 9 Bond valuation – Cont. Yield-to-maturity Relationship between coupon rate and yield to maturity Current yield Yield to call Actual return versus yield to maturity

Contemporary Investments: Chapter 9 Figure Reinvestment Rate and the Actual Rate of Return for a Bond

Contemporary Investments: Chapter 9 Five bond pricing theorems Bond prices move inversely to changes in interest rates Bonds with longer maturities are more price sensitive Price sensitivity increases at a decreasing rate Bonds with lower coupon rates are more price sensitive A price increase caused by a decrease in interest rates is larger than a price decrease caused by an increase in interest rates of the same magnitude

Contemporary Investments: Chapter 9 Figure 9.3 – Bond Price vs. Yield to Maturity

Contemporary Investments: Chapter 9 Figure 9.4 – Price Sensitivity and Maturity

Contemporary Investments: Chapter 9 Figure 9.5 – Price Sensitivity and Coupon Rate

Contemporary Investments: Chapter 9 Figure 9.6 – Price Changes for Increase and Decrease in Yield

Contemporary Investments: Chapter 9 Assessing interest rate risk What is duration? Finding a bond’s duration Duration and price sensitivity Duration and price changes

Contemporary Investments: Chapter 9 Figure 9.7 – Relationship Between Duration and Maturity

Contemporary Investments: Chapter 9 Figure 9.8 – Relationship Between Duration and Coupon Rate

Contemporary Investments: Chapter 9 Figure 9.9 – Relationship Between Duration and Yield to Maturity

Contemporary Investments: Chapter 9 Credit risk Bond ratings –Description of bond ratings –Determinants of bond ratings –Bond ratings and default rates –Graham & Dodd on credit risk and bond selection

Contemporary Investments: Chapter 9 Risk and required return for bonds General relationship (equation 9.8) r = f (i, ∆ p, ir, rr, dr, cr, lr, fxr) Bond yields and maturity Bond yields and credit risk

Contemporary Investments: Chapter 9 Figure 9.10 – Yield Spread Between T-Bonds and T-Bills

Contemporary Investments: Chapter 9 Figure 9.11 – Quality Yield Spreads in the U.S. Capital Markets