PPT-Bond Prices and Interest Rate Risk

Chapter 5 Kidwell Blackwell Whidbee and Sias 101017 Chapter 5 Kidwell Blackwell Whidbee amp Sias 1 The Time Value of Money Investingin financial assets or in real assetsmeans giving up consumption until later. Bonds and Their Valuation. A bond is simply a negotiable . IOU. , or a loan. . Investors who buy bonds are . lending. a specific sum of money to a corporation, government, or some other borrowing institution.. 0. Know the important bond features and bond types. Understand bond values and why they fluctuate. Understand bond ratings and what they mean. Understand the impact of inflation on interest rates. Understand the term structure of interest rates and the determinants of bond yields. Key Features of Bonds. Bond Valuation. Measuring Yield. Assessing Risk. Chapter 7. What is a bond?. A long-term debt instrument in which a borrower (bond issuer) agrees to make payments of principal and interest, on specific dates, to the lender (bondholders). Chapter 11. Learning Objectives. Understand interest rate risk and the key bond pricing relation. Compute and understand the valuation implications of:. Duration . Modified Duration, and . Convexity of a bond portfolio. Short . And . Long Term Rates. As discussed in Chapters 3 and 4, the yield curve depicts varying spot rates over associated bond terms to maturity. Spot rates are interest rates on loans originated at time zero (e.g., now). The yield curve is typically constructed from the yields of benchmark highly liquid (where possible) default-free fixed income and/or zero coupon instruments. . . Stock Valuation is an Art not a Science. Economic drivers . of stock value. Fundamental analysis . based on accounting information. Technical analysis . based on price patterns. 2. The Economics of Stock Value. As interest rates change, the value of existing bonds go either up or down. . If interest rates increase, the value of bonds sold at lower interest rates decline in value.. If interest rates decline, the value of bonds sold at higher interest rates increase in value. . 3. Measuring interest rate . and credit risk. Institute of Economic Studies. Faculty of Social Sciences. Charles University in Prague. Financial Instruments . Measuring interest rate and credit risk. O’BRIEN. Money,. Banking, and. the Financial System. Interest Rates and Rates of Return. C H A P T E R. 3. 3.1. 3.2. 3.3. Explain how the interest rate links present value with future value. LEARNING OBJECTIVES. O’BRIEN. Money,. Banking, and. the Financial System. Interest Rates and Rates of Return. C H A P T E R. 3. 3.1. 3.2. 3.3. Explain how the interest rate links present value with future value. LEARNING OBJECTIVES. Bodie, Kane, and Marcus. Essentials of Investments, . 9. th. Edition. 10.1 Bond Characteristics. Bond. Security that obligates issuer to make payments to holder over time. Face Value, Par Value. Payment to bondholder at maturity of bond. Banks customers) Banks delaers Securities firms Insurance Companies Pensions, Asset managements Investment trusts, Hedge funds Corporates, others Interbank Transactions The numbers represent the pro www.investor.gov INVESTOR BULLETIN Interest Rate Risk — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall The SEC’s Office of Investor Education and Advocacy is issuing this Investo BankscustomersBanksdelaersSecuritiesfirmsInsurance CompaniesPensions Asset managementsInvestment trustsHedge fundsCorporates othersInterbank TransactionsThe numbers represent the proportion of NonIBOR