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Simultaneous combination of both cap and floor.
When bonds are redeemed under the call provisions specified in the bond indenture.
Risk of investor's principal being returned when interest rates fall, and as a result reinvesting at a lower rate.
Absolute protection against call prior to maturity.
1) Regular Cycle Auction-Single Price2) Regular Cycle Auction - Multiple Price3) Ad Hoc auction System4) Tap System.
Cpn moves in direction opposite to reference rateNew Coupon Rate =
Constant Rate (K) - (L * Reference Rate)Where K is the constant and L is
the multiplier
Issued in a local mkt by a foreign issuer.
Cpn Rate > Current Yld > YTMCpn Rate > required mkt yld, then
bd price > par valuePremium/Price decreases to par as bd approaches
mat.
Refers to bond and note principal payments with the coupons stripped
off. Those derived from stripped bonds are denoted (bp) and those from
stripped notes (NP).
If interest rates have risen and/or the creditworthiness of the issuer
has deteriorated so that the market price of the bond has fallen below
par.
If the Discount Rate or Required Yld Increases then PV Decreases.If
the Discount Rate or Required Yld Decreases then PV Increases.
Price returns to par.
Investors should receive the same total return from investing in a 2
yr bd as investing in a 1 yr bd, and then rolling the proceeds into a
second 1 yr bd.The two 1 year rates multiplied together will equal the 2
year rate squared.
Scaling factorNew Coupon Rate = (b * Reference Rate) (+) or (-) Quoted Margin.
Bonds that do not pay interest; Instead sold at a deep discount from
par values. Market convention states semi-annual compounding used when
pricing zeros.
(1) Default Risk(2) Credit Spread Risk(3) Downgrade Risk
1) Uncertainty of Principal Cash Flow2) Uncertainty of Coupon Cash Flow3) Bond Convertible/exchangeable.
Diff btwn a Bd's Yld and comparable Risk Free Bd's Yld. All else equal the riskier the bd the higher the spread.
Interest that is either payable or receivable, and that has been
recognized, but not yet paid or received. Accrued interest occurs as a
result of the difference in timing of a security's cash flows and the
measurement of these cash flows.
Coupon formulas based on inflation; Coupon Formula Ex.: 3% + annual change in CPI.
Effective Convexity takes into account changes in cash flows due to
embedded options, while modified convexity does not.The difference
between modified convexity and effective convexity mirrors the
difference between modified duration and effective duration.
Current yield is concerned only with coupon cash flow, but does not
consider capital gains/losses or reinvestment income.Current Yield =
Annual Cash Coupon Payment / Bond Price.
Reinvestment Risk increases if1) Coupons are Higher2) Maturities are Longer.
YTC - Investors are typically interested in knowing what the yield
will be if the bond is called by the issuer at the first possible date.
This is called yield to first call or yield to call (YTC).
Grants bondholder right to convert bond into a fixed number of common shares. Options adds value to bond.
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