Start Discovering Solved Questions and Your Course Assignments
TextBooks Included
Active Tutors
Asked Questions
Answered Questions
after estimating the cash flows the next step is to determine the appropriate interest rate that should be used to discount the cash
the first step in valuation process is to estimate the cash flows that are expected to be received in the future in debt securities there
public boursesthe origin of this type of bourses can be found in the legislative work of napoleon these type of bourses are regulated by the
a manager must be able to quantify as to what will result from an adverse change in interest rates to control interest rate riskdifferent
quasi-instrumentsthese instruments are considered as debt instruments for a time-frame and are converted into equity at the option of the investor or
duration is good measure while estimating the percentage price change for a small change in interest rates but the estimation becomes
we can measure the portfolio duration by calculating the weighted average of the duration of the bonds in the portfolio the proportion of
duration is often referred to as the approximate percentage change in the price for a 1 change in rates now we will see some other
the total investable capital market portfolioaccording to a report prepared by mckinsey in january 2007 world financial assets including bonds stocks
benefits of issue of securitiesinitial public offering ipo of securities gives instant recognition and visibility to the firm helps to attract and
the role of merchant bankerthe issuer appoints the merchant banker or investment banker to undertake the issue activity a merchant banker performs
modified duration is used to determine the percentage change in the bonds prices for a 100 basis point 1 change in the yield the
to calculate duration we need to first obtain the values for v- and v where v- is the price when the yield decreases by certain number of
issuance of securities security issues by companies are a novel and common way of raising funds that in turn help realize their growth aspirations
let us express the process of calculating approximate percentage price change for a given change in yield and a given duration using the
changes in the bond value is inversely related to the change in the interest rates if an investor holds a long bond position
historically three types of shapes have been observed for the yield curvethe relative change in the yield for each treasury
there are two ways to estimate yield volatility - historical volatility and implied volatility thus far we have discussed how to
rate duration can be defined as the sensitivity of the change in value to a particular change in spot rate every point in a spot rate
observed yield on strips can be used to construct an actual spot rate curve but it is not free from drawbacks there are some problems
many practitioners feel that instead of using only on-the-run issues all treasury coupon securities and bills are to be used for
the wide gap between maturities poses problems in using the on-the-run issues especially after five years some dealers and vendors use
on-the-run treasury issues are the most recently auctioned issues of a given maturity they include treasury bills of 3-month 6-month and
the following treasury issues can be included for the construction of the curveon-the-run treasury issueson-the-run treasury issues
robert litterman and jose scheinkman were the first to study how changes in the shapes of the yield curve affect the total return on the