Introduction to assessment with fixed income (2024)

Refreshing lecture

We have dealt with the principles and techniques that are used in the valuation of fixed interest -rate -bound, as well as liquid interest and money market instruments.

• The market reduction discount is the return that requires investors who consider the risk of investment in bond.
• A bond is priced at a premium above the nominal value when the coupon interest rate is larger than the market discount.
• A bond is priced at a discount below nominal value when the coupon interest rate is lower than the market discount.
• The amount of premium or discount is the present value of "excess" or "shortage" in coupon payments regarding dividends before the due date.
• The proceeds to maturity, the internal return on cash flows, is the implicit market feeding discount given the price of the bond.
• A bond price moves in reverse with the trouble of the market.
• The relationship between a bond course and the market discount foot is convex.
• The price of a lower coupon bond is unstable than the price of a higher coupon bond where other things are the same.
• In general, the price of a long -term bond is more unstable than the price of a shorter term where other things are the same.An exception to this phenomenon can occur on low coupon (but not zero coupon) bonds priced with a discount on nominal value.
• Assuming there are no standard prices for standard, premium and discount bonds are "attracted to pairs" as the duration approaches.
• A spot speed is a yield to maturity of a zero coupon binding.
• A yield to adulthood can be approached as an weighted average of the underlying space speeds.
• Between Coupon Datos is the complete (or invoice or "dirty") price for a bond distributed between the apartment (or noted or "pure") price and the accrued interest.
• Flat prices are not incorrectly mentioned not to represent the daily increase in the full price as a result of interest rate.
• Interested interest rates are calculated as a proportional share of the following coupon payment using the actual/actual or 30/360 methods for counting days.
• Matrix prices are used to appreciate illiquid bonds by using prices and yields on comparable effects with the same or similar credit risk, coupon interest and duration.
• The periodicity of an annual interest rate is the number of periods of the year.
• A dividend cited on a half -year -old bond base is an annual rate for a periodicity of two. Widened period times.
• The general rule of periodicity conversions is that the composition more often corresponds to the composition with a higher annual rate with a lower annual rate.
• The results of the street convention assume that payments are made on planned data, the neglect of weekends and holidays. The current dividend has been shared the annual coupon payment and thereby neglect as a measure for the investor's return on the time value ofMoney, a built -up interest and the profit by buying for a discount or loss by buying for a premium.
• The simple yield is like the current yield, but includes the linear depreciation of a discount or premium.
• Dividends to the worst on a converbable bond are the lowest yield for first -class, yield for second calls, etc., calculated using the call price for future value and the call date for the number of times.
• The option-adapted dividend on a convergable bond is the yield-to-maturity after adding the theoretical value of the call option for the price.
• A liquid interest rate (floater or frn) maintains a more stable price than a fixed interest rate because interest payments adapt to changes in market rates.
• The quoted margin on a float is usually the specified yield spread over or under the reference, which we call the market reference.
• The discount margin of a floater is the distribution required by investors and whose margin must be set to be able to act at the nominal value on an interest rate set date.
• Geldmarkt instruments that have a year or less time before the due date are quoted or added to a discount rate.
• The dosing rates of the Geldmarkt underestimate the return of the investor (and the costs of the borrower) because interest income is divided by the nominal value or the total amount that has been exchanged for the due date and not of the amount of the investment.
• Money market instruments must be converted into a common basis for analysis.
• A money market equivalent return is an add-on rate for a year of 365 days.
• The periodicity of a money market instrument is the number of days of the year divided by the number of days to adulthood.
• In theory, the term structure or term structure of interest rates is the relationship between yield to maturity and time for the duration of bonds that have the same currency, credit risk, liquidity, tax status and periodicity.
• A spot curve is a series of returns to maturity of zero coupon bonds.
• A commonly used interest rate curve is a number of efficiency for maturity on coupon bonds.
• A pair of curve is a series of returns to adulthood that assume that the bonds are priced at a purple.
• In a cash market, the delivery of security and cash payment is made on a settlement date within a usual period after the trading date - for example "T + 3."
• In a forward market, the delivery of security and cash payment is made on a predetermined future date.
• An attacker is the interest rate on a bond or money market instrument that is traded in a forward market.
• An implicit forward rate (or forward yield) is the break -thezestine -genestine investment frequency that connects the return on an investment in a shorter term zero couponbligation with the return in a zero coupon bond bond.
• An implicit forward curve can be calculated on the basis of the spot curve.
• The spot prices involved can be calculated as a geometric average of forward rates.
• A fixed -income bond can be appreciated by a market discount foot, a number of spot prices or a number of foresight rates.
• A binding yield for adulthood can be separated into a benchmark and a spread.
• Changes in benchmarkt rates capture macro -economic factors that affect all bonds on market inflation, economic growth, exchange rates and monetary and tax policy.
• Changes in spreads usually catch micro -economic factors that influence the specific bond -credit risk, liquidity and tax effects.
• Benchmarkt rates are usually advantageous compared to the term of the government bonds or fixed interest rates on interest rate swaps.
• A G-spread is the spread over or under a frequency of government bonds, and an I-spread is the spread above or during an interest rate speed interest rate.
• A G-spread or an i-spread can be based on a certain benchmark speed or at a speed interpolated from the benchmark yield basket.
• A Z-spread (zero-volatility spread) is based on the entire benchmark spot basket.It is the constant spread that is added to each location, so that the present value of the cash flows correspond to the price of the bond.
• An option-corrected spread (OAS) on a convergable bond is the Z-spreading minus the theoretical value of the embedded on-call institution.