Bond Market
Time Value of Money & Discounting Debt security is claim on specific stream of income (fixed income) Present value of $1 to be received in one year? Risks Market Credit Liquidity Legal Discount Rate & Discount Factor
Day Count & Payment Frequency Convention is to quote rate on annual basis Day count basis Money Market Bond Market Actual/30 30/360 Actual/Actual Government Bond (Treasuries) Corporate Bond Municipalities
Short Term Interest Rate T-Bill London Inter Bank Offered Rate (LIBOR) Spot Forward Convention Arbitrage Pricing Linear Interpolation
Long-term Bonds Market Risk and Bond Prices Treasury Convention Issuance Process Corporate Bond Issuance Process Bond price and Yield Yield to maturity Yield to call
Duration & Convexity Measuring sensitivity to change in yield Macaulay’s Duration Modified Duration Duration of portfolio Weighted Numerical Convexity is second derivative
Duration & Price Sensitivity