Ethics&ProfessionalSS2-SS4-SS6-FinancialReportingandSS10Ethics&ProfessionalSS2-SS4-SS6-FinancialReportingandSS10-SS13-EquitySS15-FixedAlternative ?StudySession15:Basic?StudySession15:BasicüReading50:Fixed-IncomeSecurities:DefiningüReading51:Fixed-IncomeMarkets:Issuance,Trading,andüReading52:IntroductiontoFixed-IncomeüReading53:IntroductiontoAsset-Backed?StudySession16:AnalysisofüReading54:UnderstandingFixed-IncomeRiskandüReading55:FundamentalsofCredit考綱對比考綱對比Reading51增加了一條考綱“Describe學習建議??知識點之間邏輯關系較強，需加強總結；學習建議??知識點之間邏輯關系較強，需加強總結；?如遇到一遍沒聽懂的，建議重聽一到兩遍；??堅持，才是王道你的與堅持，才是王道你的與眾不同，來自于多堅持的每一分鐘??Describefivebasicfeaturesoffixed-income?Calculatethepromisedcashflowsbasedon?固定收益證券是某一市場主體的財務責任，該主體承?固定收益證券是某一市場主體的財務責任，該主體承?SupranationalOrganizations,suchasWorldBank.??SupranationalOrganizations,suchasWorldBank.?Sovereign(national)governments,suchasChina.?Non-sovereign(local)governments,suchascityof?Quasi-governmententities,suchasagenciesthatareownedbygovernment.?Companies,suchascorporate?Moneymarketsecurities:oneyearor?Capitalmarketsecurities:morethanone?Perpetualbond:nostatedmaturity?Theamountthattheissueragreestorepaythebondholdersonthematuritydate.?The?Theannualamountofinterest?Coupon=couponrate×par?üTheinterestratethattheissueragreestopayeachyearuntilthematuritydate.CouponüCouponpaymentsmaybemadeannually,semi-annually,quarterly,ormonthly,etc.üGenerallysemi-annuallypaidin??Dual-currencybonds:makecouponpaymentsinonecurrencyandpaytheparvalueatmaturityinanother?Dual-currencybonds:makecouponpaymentsinonecurrencyandpaytheparvalueatmaturityinanother?Currencyoption?givebondholderstherighttoselectoneofcurrenciesforeachpaymentinwhichtheywanttoCanbeviewedasacombinationofasingle-bondplusaforeigncurrency?Abondhasparvalueof$100andmaturityof3years.couponrate5%andcouponpaymentaremadesemi-annually.Abondhasparvalueof$100andmaturityof3years.couponrate5%andcouponpaymentaremadesemi-annually.pleasefigureoutitscashflowwithatimeline.Thereare6periodicpaymentsof$2.5andthepaymentmaturityof3012?Importance:??Fivebasicfeaturesof?Importance:??Fivebasicfeaturesoffixed-incomesecurity:maturity,parvalue,couponrateandfrequency,currencyCashflowoffixedincomeperiodiccouponpayments+parvalueat??Exam是Fixedincome可能出PeriodiccouponpaymentBondindenture&other?Bondindenture&other?Describethecomponentsofbond?Describethelegal,regulatoryandtaxconsiderationrelatedtobondinvestment.Bond?TheBond?Thelegalcontractthatdescribetheformofbond,obligationsofissuer,andtherightsof?????LegalidentityofthebondissueranditslegalSourceofrepaymentproceedsAssetorcollateralbackingCreditenhancementsBondLegalidentityofthebondissuerBondLegalidentityofthebondissueranditslegal?Theissuerisidentifiedintheindenturebyitslegal??Corporatelegalentity:e.g.Wal-martStoreSpecialpurposeBond?HowissuerBond?Howissuerservicethedebtandrepaythe?Supranationalbond:repaymentofpreviousloans,incapitalfromitsSovereignbonds:taxrevenues,printNon-sovereigngovernmentdebt:generaltaxingauthority,cashflowsoftheprojectfunded,specialtaxesor??Bond?HowBond?Howissuerservicethedebtandrepaythe?Securitizedbonds:cashflowfromunderlyingCorporatebonds:cashflowfromits?Bond?AwaytoBond?Awaytoreduce/alleviatecreditrisk,anddecreases?Securedbonds:backedbyassetsorfinancialpledgedtoensuredebtrepaymentincaseofdefault.Unsecuredbonds:havenocollateral,bondholdershaveonlyageneralclaimontheissuer'sassetsandcashDebentures:aregenerallyunsecuredbondsinjurisdictions,e.g.??Bond?Bond?Collateraltrustbonds:securedbysecuritiessuchascommonshares,otherbondsorotherfinancialassets.?Equipmenttrustcertificates:securedbyspecifictypeofequipmentorphysicalassets.?Mortgage-backedsecurities(MBS):debtobligationthatrepresentclaimstocashflowfrompoolsofmortgageBond?VarietyofprovisionsBond?Varietyofprovisionsusedtoreducethecreditriskdecreasethebond’s?InternalcreditüSubordination:waterfallstructure,üOvercollateralization:postmorecollateralthanisneededtoobtainorsecurefinancing.üExcessspread:morecashflowreceivedfromtheassetsusedtosecuretheissuethantheinterestpaidtoBond?ExternalcreditüBond?ExternalcreditüSuretybond:reimburseinvestorsforanylossesincurrediftheissuerdefaults,byainsurancecompany.üBankguarantee:sameassuretybondbutbyaüLetterofcredit:promisetolendmoneytoissuingentityforanycashflowshortfalls.Bond?LegallyenforceablerulesthatBond?Legallyenforceablerulesthatborrowersandagreeonatthetimeofanewbond?Negativecovenants:prohibitionsonborrower(canüRestrictionsonassetüNegativepledgeofüRestrictionsonadditionalAffirmativecovenants:promisesbyborrower(shouldüMaintainfinancialüTimelypaymentofprincipalandLegalandregulatoryNationalbond?Includesallthebondsissuedandtradedinaspecificcountry,andLegalandregulatoryNationalbond?Includesallthebondsissuedandtradedinaspecificcountry,anddenominatedinthecurrencyofthatcountry.?Domesticbonds:issuedbyentitiesthatareinthatForeignbonds:issuedbyentitiesthatareincorporatedinanothercountry(Yankee/panda/Samurai/kangaroo?LegalandregulatoryEurobond?IssuedoutsideLegalandregulatoryEurobond?Issuedoutsidethejurisdictionofanysinglecountryandcanbedenominatedinanycurrency.?Eurobonds:issuedandtradedonEurobondLegalandregulatoryGlobalbond?ConsistofnationalbondmarketsLegalandregulatoryGlobalbond?ConsistofnationalbondmarketsandEurobond?Globalbonds:issuedsimultaneouslyinthemarketandinatleastonedomesticbondEurobondGlobalGlobalForeignNationalDomesticLegalandregulatoryBearerbonds?LegalandregulatoryBearerbonds?Doesnotkeeprecordsofwhoownsthebonds,onlytheclearingsystemknowswhothebondownersare.?MostEurobondsarebearer?Ownershipisrecordedbyeithernameorserial?Mostdomesticandforeignbondsareregistered?Someinvestorsmaypreferbearerbondstoregisteredbonds,possiblyfortaxreasons.?Theincomeportion(interest)?Theincomeportion(interest)isgenerallytaxedattheordinaryincometaxrate.Capitalgainor?Usuallytreateddifferentlyfromtaxable?Insomecountries,thereisadifferenttaxrateforlong-termandshort-termcapitalgains.?Importance:??5componentsofbond?Importance:??5componentsofbondindenture:legalidentityofbondissueranditslegalform,sourceofrepaymentproceeds,assetorcollateralbacking,creditenhancements,covenants.Otherconsiderations:legal,regulatory,and??ExamtipsCovenants的類別的辨識是常見考點StructureofCashFlow-StructureofCashFlow-?Describethestructureofprincipal?Describethestructureofcouponpayment,includingfixedcouponandfloatingcoupon.Structureofcashflows:principalBullet?Structureofcashflows:principalBullet?Theentirepaymentofprincipaloccursat?Hasaperiodicrepaymentscheduleof?Fullyamortizedbond:hasaschedulethatoutstandingprincipaltozerobythematuritydate.Partiallyamortizedbond:onlyaportionoftheprincipalisrepaidbythematuritydate.üBalloonpayment:amountrequiredatmaturityretirethebond’soutstanding?Structureofcashflows:principalExample:bulletCash010203040Structureofcashflows:principalExample:bulletCash01020304050Structureofcashflows:principalCash01234Structureofcashflows:principalCash0123450Structureofcashflows:principalCash01234Structureofcashflows:principalCash0123450Structureofcashflows:principalStructureofcashflows:principal?Referstoanissuer’splanstosetasidefundsovertimetoretirethebond,retireamountisbasedontheprovision.Advantage:lesscreditStructureofcashflows:couponStructureofcashflows:coupon?paysafixedperiodiccouponoveraspecifiedtimetomaturity,e.g.plainvanillabond/conventionalbond.?Zero-coupon(purediscount)bond:donotpayStep-upcouponbonds?CouponincreasesbyspecifiedmarginsatspecifiedStructureofcashflows:couponStructureofcashflows:coupon?Paysnocouponsforitsfirstfewyearsbutthenpaysahighercouponfortheremainderofitslife.Zero-couponbondcanbethoughtasanextreme?AllowstheissuertopayinterestintheformofamountsofthebondissueratherthanasacashStructureofcashflows:couponStructureofcashflows:coupon?Donothaveafixedcoupon,andcouponrateislinkedtoanexternalreferencerate,suchasLIBOR.?Couponrate=referencerate+quotedmarginüReferencerateresetperiodically,quotedmarginisusuallyconstant.üVariable-ratenote:thespreadisnotüCouponpaymentsareinarrears:basedonpreviousperiod’sreferencerate.Structureofcashflows:coupon?AlmostStructureofcashflows:coupon?AlmostallFRNshavequarterly?FRNsmayincludeafloorora?FloorpreventscouponfromfallingbelowaminimumCappreventscouponfromrisingaboveaspecifiedmaximumrate.??InverseorreverseFRN(inverse?Couponrate=-referencerate+quotedStructureofcashflows:couponIndex-linkedbonds(指Structureofcashflows:couponIndex-linkedbonds(指數掛鉤債券?Couponpaymentsand/orprincipalrepaymentlinkedtospecificInflation-linkedbonds:couponpaymentsand/orprincipalrepaymentlinkedtoainflationindex(CPI,RPI).Example:TIPS(TIPS-treasuryinflationprotectionüPrincipeprotected(changewithüCouponratedoesnotüCouponwillchange(becauseprincipal??Structureofcashflows:couponCredit-linkedcouponbondsStructureofcashflows:couponCredit-linkedcouponbonds(信用掛鉤債券?Couponchangeswhenthebond’screditrating?Ratingdecreaseleadstohighcouponrate,whichresultinfurtherdeteriorationofthecreditEquity-linkednotes(ELN,股權掛鉤債券?Finalpaymentbasedonthereturnofanequity?Typicallyprincipalprotectedifno?Canbethoughtofasazero-couponbondwithareturnprofilelinkedtothevalueoftheequityindex.?Importance:??Cashflowstructure?Importance:??CashflowstructureofprincipalüBulletüAmortizingbonds:fullyamortizingbond,partialamortizingbond.üSinkingfund?Content?Cashflowstructureof?Content?CashflowstructureofcouponüFixedcoupon:fixed-ratecouponbonds,step-upcouponbonds,deferredcouponbonds,PIKcouponüFloatingcoupon:floating-ratenotes,index-bonds,credit-linkedcouponbonds,equity-linked?Examtips主要是考Cashflow類別的辨識StructureofCashFlow-StructureofCashFlow-?Describecontingencyprovisionsembeddedinbond,includingcallable,puttable,andconvertiblebond.?Identifytheimpactsofcontingencyprovisionsborrower/lender,andonpriceoryieldoftheStructureofcashflows:contingencyStructureofcashflows:contingency?Clausethatallowsforsomeactioniftheeventorcircumstancedoesoccur.Embeddedoption(內嵌期權)contingencyprovisionindentureforbonds,provideissuersorbondholderstheright,butnottheobligation,totakesomeaction.üCallablebondsüPutablebondsüConvertiblebondsStructureofcashflows:contingencyCallable?GivesStructureofcashflows:contingencyCallable?Givestheissuertherighttoredeemallorpartofthebondbeforethespecifiedmaturitydate.?Canprotectissuersagainstdeclineininterest???Callprice:thepricetoredeemtheCallprovisionsarebeneficialtotheInvestorsfacemorereinvestmentrisk,andwillaskhigheryield,andpaylowerprice;?Callablebondnon-callablebond–callStructureofcashflows:contingencyPuttable?Structureofcashflows:contingencyPuttable?Givesthebondholderstherighttosellthebondbacktotheissueratapre-determinedpriceonspecifieddates.?Canprotectinvestoragainstincreaseininterest????Putprice:thepricetosellbackthePutprovisionsarebeneficialtotheinvestors;Investorswillaskloweryield,andpayhigherprice;Puttablebond=non-puttablebond+putStructureofcashflows:contingencyConvertible?GivesbondholdertherighttoexchangethebondforaspecifiedStructureofcashflows:contingencyConvertible?Givesbondholdertherighttoexchangethebondforaspecifiednumberofcommonsharesinissuingcompany.?Hybridsecuritywithbothdebtandequity?Conversionprice:thesharepriceatwhichbondcanbeconvertedintoConversionprovisionsarebeneficialtobondholder.Investorswillaskloweryield,andpayhigherprice.Convertiblebond=straightbond+calloptionon???Structureofcashflows:contingencyConvertiblebondStructureofcashflows:contingencyConvertiblebond?Contingentconvertiblebonds:converttocommonequityautomaticallyifaspecificeventoccurs.?Warrant(認股權證)entitlestheholdertobuyunderlyingstockoftheissuingcompanyatfixedpriceuntilexpiration?Anattachedoptionratherthananembedded?Importance:??Bondswithcontingency?Importance:??Bondswithcontingencyprovision:callableputtablebonds,convertibleüCallablebonds:benefittheissuer(borrower),lowerpriceandhigheryield;üPuttableandconvertiblebonds:benefitthe(lender),higherpriceandlower?Examtips對誰有好處，怎么影響債券的price和yield?Describeclassificationsof?Describeclassificationsoffixed-income?Describeprimarymarketsandsecondary?Describegovernment-relatedbondsandcorporateClassificationbytypeofClassificationbytypeof?Governmentandgovernment-related?Corporate?Structuredfinance?Investmentgrade?Non-investmentgrade??Moneymarketsecurity:originalmaturityofoneyearor?Capitalmarketsecurity:originalmaturitylongerthanoneClassificationbytypeof?Fixed-rate?Floating-rate?Themostwidelyusedreferencerateforfloating-rateIsagroupofratesfordifferentcurrenciesanddifferentborrowingperiodsrangingfromovernighttooneyear.TheratesarebasedonexpectedratesforunsecuredloansonebanktoanotherintheinterbankmoneyIssuanceandtradingofPrimarybondIssuanceandtradingofPrimarybond?MarketsinwhichissuersfirstsellbondstoPublicoffering:anymemberofthepublicmaybuythePrivateplacement:onlyaselectedgroupofinvestorsmaybuythebonds.Secondarybond?marketsinwhichexistingbondsaresubsequentlytradedamongIssuanceandtradingofPublic?IssuanceandtradingofPublic?Underwrittenoffering:theinvestmentbank(underwriter)guaranteesthesaleofthebondissueatanofferingprice,andtakestheriskassociatedwithsellingthebonds.Syndicatedoffering:agroup,orsyndicate,ofinvestmentbanksunderwritetheissuance.?Besteffortsoffering:theinvestmentbankonlyservesasaandsellthebondissueforaIssuanceandtradingofIssuanceandtradingof?Auction:anissuingmechanismthatinvolvesbiddingandhelpfulforpricediscovery.Commonlyusedbyissuinggovernment?Shelfregistration(上架注冊):issuerpreparesasingle,all-encompassingofferingcircularthatdescribesarangeoffuturebondissuances,allunderthesameüIssuebondovertimewhenissuerneedstoraisefundsandsaveIssuanceandtradingof?Issuanceandtradingof?Organizedexchange:providesaplacewherebuyersandsellerscanmeettoarrangetheirtrades?OTCmarkets:buyandsellordersinitiatedfromvariouslocationsarematchedthroughacommunicationnetworkDealerswillpostbidandask?theprocessthatthebondsarepassedtothebuyerandpaymentisreceivedbytheseller?Issuedbynationalgovernments?Issuedbynationalgovernmentsandbackedbythetaxing?On-the-run:mostrecentlyissuedbonds,alsoreferredtoasabenchmarkissue.?CandenominatedinlocalcurrencyorforeignItiscommontoobserveahighercreditratingforsovereignbondsissuedinlocalcurrencythanforthoseissuedinaforeigncurrency.?U.STreasuries:sovereignbondsin?U.STreasuries:sovereignbondsintheUnited??T-Bills:originalmaturityisoneyearorT-Notes:originalmaturityislongerthanoneyearandupto10?originalmaturityislongerthan10Non-?issuedbygovernmentbelowthenationallevelsuchasNon-?issuedbygovernmentbelowthenationallevelsuchasregions,states,andQuasi-?Issuedbyentitiescreatedbynationalgovernment,e.g.sponsoredenterprises(FannieMae,FreddieMac),usuallyratedvery?issuedbysupranationalagencies(multilateralBank?Bilateralloan:fromBank?Bilateralloan:fromasinglelendertoasingle?Syndicatedloan:fromagroupoflendertoasingle?Shortterm,unsecuredpromissory?Traditionally,onlythelargest,moststablecompaniesissuedcommercialpaper?Oftenwith?Oftenwithoriginalmaturitiesonlessthan1?Medium-termnote(MTN):amisnomer,canhavelong??Marketclassification:by??Marketclassification:byissuer,bycreditquality,bymaturity,coupon,PrimaryüPublicoffering:underwrittenoffering,besteffortsoffering,üPrivate???Governmentrelatedbonds:sovereignbonds,?Governmentrelatedbonds:sovereignbonds,non-sovereignCorporatedebt:bankloan,commercialpaper,corporatenotesandbonds(MTN).??Examtips掌握概念為主，publicofferingShort- ?Describeshort-termfundingShort- ?Describeshort-termfundingalternativesto?DescribeRepoanditsShort-termfundingto?DemandShort-termfundingto?Demanddeposits/Checkingaccounts:availabletocustomers"ondemand,andtypicallypaynointerest?Savingaccounts:payinterestbutdonotofferthesametransactionalconvenienceasdemanddeposits?Moneymarketaccount:offermoneymarketratesofreturnanddepositorscanaccessfundsatshortornonoticeAnintermediatebetweendemanddepositandsavingaccountsShort-termfundingto?Short-termfundingto?Centralbankfunds:bankswithreservesurplusloanmoneytobankswithreserveshortage.?Interbankfunds:loansanddepositsbetweenShort-termfundingtoShort-termfundingto?Large-denominationnegotiablecertificatesofdepositCDrepresentsaspecifiedamountoffundsondepositforaspecifiedmaturityandinterestrateNegotiableCDallowsanydepositor(initialorsubsequent)totheCDintheopenmarketpriortothematurityRepurchase?ThesaleofRepurchase?Thesaleofasecuritywithasimultaneousagreementbythesellertobuyitbackatanagree-onprice(repurchaseprice)andfuturedate(repurchasedate).?Inpractical,arepocanbeviewedasacollateralized???Overnightrepo:thetermisoneTermrepo:thetermismorethanoneRepotomaturity:thetermisuntilthefinalmaturityRepurchase?Reporate:Repurchase?Reporate:theinterestrateimpliedbytwo?Thereporateishigher?????RepotermisCreditqualityofthecollateralsecurityislower;Collateralsecurityisnotdeliveredtothelender;Collateralsecurityisinlowdemandorhighsupply;InterestrateforalternativesourcesoffundsareRepurchase?Repomargin/haircut:theRepurchase?Repomargin/haircut:thedifferencebetweenthemarketvalueofthecollateralsecurityandthevalueoftheloan.?Theropemarginishigher????RepotermisCreditqualityofthecollateralsecurityislower;Creditqualityoftheborrowerislower;CollateralsecurityisinlowdemandorhighRepurchase?Reverserepurchaseagreement/ReverseRepurchase?Reverserepurchaseagreement/Reverserepo:viewrepothroughthecashlendingcounterparty.??Short-termfunding?Short-termfundingtoüRetailüShort-termwholesalefunds:centralbankfunds,interbankfunds,large-denominationnegotiable?Repo:overnightrepot,term?Repo:overnightrepot,termrepo,repotoüFactorsonreporate&repomargin:repoterm(↑),creditqualityofcollateralandborrower(↓),collateraldelivery(↓),collateraldemand(↓)orsupply(↑),interestrate(↑).?Exam常考點：影響Reporate和RepomarginBondPricingwithYTM&SpotBondPricingwithYTM&Spot?Calculatebondpricegivenamarketdiscount?Identifytherelationshipsamongabond’sprice,couponrate,maturity,andyield-to-maturity.?DefinespotratesandcalculatebondpricewithspotBondPricingbondwithasinglediscount?BondpriceistheBondPricingbondwithasinglediscount?Bondpriceisthepresentvalue(PV)ofthepromisedcash?Marketdiscountrate:discountrateusedinthePVtherequiredrateofreturn(requiredyield)byinvestorsgiventheriskofthebondinvestment.nPM (1+r)P= (1+r)t=F:facevalueoftheBondExample?Supposethecouponrateonabondis4%andthepaymentismadeonceayear.IfBondExample?Supposethecouponrateonabondis4%andthepaymentismadeonceayear.Ifthetime-to-maturityisfiveyearsandthemarketdiscountrateis6%,thepriceofthebondshould 104 P =Whencouponrate<discountrate,thebondispriceddiscount,oradiscountBondExample?Supposethecouponrateonabondis6%andthepaymentismadeonceayear.Ifthetime-to-maturityisfiveyearsandthemarketdiscountrateis6%BondExample?Supposethecouponrateonabondis6%andthepaymentismadeonceayear.Ifthetime-to-maturityisfiveyearsandthemarketdiscountrateis6%,thepriceofthebondshould (1.06 (1.06 (1.06 (1.06106 (1.06P++++=100Whencouponrate=discountrate,thebondispricedatoraparBondExample?Supposethecouponrateonabondis8%andthepaymentismadeonceayear.IfBondExample?Supposethecouponrateonabondis8%andthepaymentismadeonceayear.Ifthetime-to-maturityisfiveyearsandthemarketdiscountrateis6%,thepriceofthebondshould 108 P (1.06)1 (1.06)2 (1.06)3 (1.06)4 (1.06)5=108.425Whencouponrate>discountrate,thebondispricedpremium,orapremiumSupposethatathree-year,zero-couponbondwithSupposethatathree-year,zero-couponbondwithparof100hasarequiredrateofreturnof10%,whatisthebondA.B.C.Bis 74.62(1+BondYield-to-?TheinternalrateofreturnofonthecashBondYield-to-?Theinternalrateofreturnofonthecash?Ifthemarketpriceofabondisknown,thevaluationequationcanbeusedtocalculateitsYTM.n PM P=t=t(1+YT+tn))(1+YTBondYield-to-?ThreecriticalassumptionsforBondYield-to-?Threecriticalassumptionsfor???TheinvestorholdthebonduntilTheissuermakesfullandtimelycouponandprincipalpayments;TheinvestorisabletoreinvestcouponpaymentsatYTM.BondpriceandRelationshipbetweenbondprice&BondpriceandRelationshipbetweenbondprice&?Thebondpriceisinverselyrelatedtothe???Atpremium:couponrate>Atpar:couponrate=Atdiscount:couponrate<CouponBondpriceand?IllustratestheBondpriceand?Illustratesthechangeofbondpriceovertimeiftheyieldkeepconstant.?“Pulltopar"effect:ifnodefault,bondpriceapproachesparvalueasitstime-to-maturityapproacheszero.Supposethatafour-year,5%annualcouponpaymentispricedatSupposethatafour-year,5%annualcouponpaymentispricedat105per100ofparvalue.Whatistheyield-to-A.B.C.Ais105= + + + (1+(1+(1+(1+BondPricingbondswithspot?UseasequenceofspotratesthatcorrespondtotheBondPricingbondswithspot?Useasequenceofspotratesthatcorrespondtotheflowdatestocalculatethebond?Spotrates/zerorates:YTMonzero-couponmaturingatthedateofeachcashAmorefundamentalapproachtopricingbond,anditthe“no-arbitragenPM nP=t)+t)(1+(1+t=tnZn:spotrateforperiodBond?Supposethattheone-yearspotrateis2%,thetwo-yearspotrateis3%,andthethree-yearspotrateisBond?Supposethattheone-yearspotrateis2%,thetwo-yearspotrateis3%,andthethree-yearspotrateis4%.Then,thepriceofathree-yearbondthatmakesa5%annualcouponpayment 10 P++=102.9123?????Bond?????Bondprice:PVofcashYTM:IRRofcashSpotrates:YTMsonzero-couponBondpriceVs.YTM,andbondpriceVs.üBondprice-yieldcurve:premium,atpar,üConstant-yieldpricetrajectory:pullto?Exam必須掌握bondprice必須掌握bondpriceQuoteConventions&Matrix?DescribeandQuoteConventions&Matrix?Describeandcalculatetheflatprice,accruedinterest,andthefullpriceofabond.?DescribematrixBondpriceand?BonddealersusuallyquoteflatpricewhilethefullwillbeBondpriceand?Bonddealersusuallyquoteflatpricewhilethefullwillbepaidandtherecanbeadifferencebetweenthem.Fullprice=Flatprice+Accruedinterest(AI)(應計利息)Dirtyprice=Cleanprice+Accruedinterest記PMPTM+FPM()tTFullprice=·1+r++11+r21+rnBondpriceand?Accruedinterest(AI):theproportionalshareoftheBondpriceand?Accruedinterest(AI):theproportionalshareoftheTcouponTTAI·PM……n01Conventionstocountdays:actual/actualandüVaryfrommarkettomarket,butactual/actualismostcommonforgovernmentbondsand30/360isoftenusedoncorporate Bondpriceand?Considera5%semiannualcouponbondwithparvalueofBondpriceand?Considera5%semiannualcouponbondwithparvalueof100andrequiredyieldof4.8%.Thebondwillmatureson15February2024andcouponaremadeon15Februaryand15Augustofeachyear.Thebondistobepricedforsettlementon14May2015,andthatdateis88daysintothe181-dayperiod.WhatshouldbethepricepaidandwhatshouldbethepriceBondpriceand?1818814th,Bondpriceand?1818814th,15th,PMT=2.5,N=18,FV=100,I/Y=0.024,Fullprice(pricepaid)=101.45*(1+2.4%)88/181=102.62AI=(88/181)*2.5=1.22Flatprice(pricequoted)=102.62-1.22=Bond?EstimatethemarketBond?Estimatethemarketdiscountrateandpricebasedonthepriceofmorefrequentlytradedcomparablebonds.Comparablebonds:similartimes-to-maturity,couponrates,andcreditquality(totally,similarrisk).Commonlyusedforbondsinactively-tradedornotyetBond?Ananalystneedstovaluea3-year,4%semiannualcouponcorporatebond,BondX.ItBond?Ananalystneedstovaluea3-year,4%semiannualcouponcorporatebond,BondX.Itisnotactivelytradedandnotrecentlytransacted.However,therearequotedpricesforfourcorporatebondswithsimilarcredit????BondA:2-year,3%semiannual,tradingatBondB:2-year,5%semiannual,tradingat$102.25BondC:5-year,2%semiannual,tradingatBondD:5-year,4%semiannual,tradingatBond?Step1:Baseontheavailableinformation,wecalculatetheYTMforeachbondandwegetthefollowingtable:Bond?Step1:Baseontheavailableinformation,wecalculatetheYTMforeachbondandwegetthefollowingtable:BondBond?Step2:calculatesBond?Step2:calculatestheaverageyieldforeach(0.03786+0.03821)/2=0.038035(2-year(0.04181+0.04196)/2=0.041885(5-year?Step3:Calculatesinterpolatedyieldforbond0.038035+(3-2)/(5-2)x(0.041885-0.038035)=?Step4:usetheinterpolatedyieldtocalculatethepriceofbondN=6,YTM=1.9659,PMT=2,PV=?BondMatrixpricing?AlsousedtoestimatetheBondMatrixpricing?Alsousedtoestimatetherequiredyieldspreadoverthebenchmarkrate.?Benchmarkrate:typicallytheyield-to-maturityongovernmentbondhavingthesame,orclosetothesame,?Theisthedifferencebetweentheyield-maturityonthebondandthebenchmark????Flatprice:????Flatprice:pricequoted;fullprice:priceFullprice=flatprice+AI,AI=PMTMatrixprice:estimateYTMbasedonfrequentlytradedcomparablebonds.üUsedforbondsinactively-tradedornotyet?Exam掌握AI的計算，fullprice和flatprice了解matrixpricingBond?CalculateandinterpretyieldBond?Calculateandinterpretyieldmeasuresfor?Calculatespotratesfromforwardrates,forwardratesfromspotrates,andbondpriceusingforwardrates.Bond?YieldBond?Yieldmeasurestypicallyare?Forbondsmaturinginmorethanoneyear,typicallyareannualizedandYieldoninstrumentsmaturinginoneyearorlesstypicallyareannualizedbutnotcompounded(simpleinterestBondBond?Streetconventionyield:theIRRoncashflowassumingthepaymentsaremadeonthescheduleddates,andneglectweekendsandholidays.?Trueyield:theIRRonthecashflowsusingtheactualcalendarofweekendsandholidays.TrueyieldneverhigherthanstreetconventionBondBond?Currentyield:thesumofthecouponpaymentsreceivedovertheyeardividedbytheflatprice.Example:thecurrentyieldofa2%semiannualcouponbondpricedat95is:2/95=2.11%.?Simpleyield:thesumofannulcouponpaymentplusstraight-lineamortizationofdiscountorpremium,dividedbytheflatBondBond?Yieldtocall:theIRRoncashflowsassumingtheembeddedcalloptionisexercised.Yieldtofirstcall:assumingtheembeddedcalloptionisexercisedatthefirstcalldate.Yieldtosecondcall…?Yieldtoworst:thelowestofthesequenceofyields-to-callandtheyield-to-maturity.Bond?Supposethata7-year,8%annualBond?Supposethata7-year,8%annualcouponbondiscallableandpricedat105,the"callschedule“isthatitisfirstcallableat102infouryears,callableat101infive?YieldtoPV=-105,PMT=8,n=7,FV=100;YieldtofirstPV=-105,PMT=8,n=4,FV=102,YieldtosecondPV=-105,PMT=8,n=5,FV=101,??Bond?Bond?Couponrate=referencerate+/-quoted?Quotedmargin:thespecifiedyieldspreadoverthereferencerate,thatcompensateinvestorforthedifferenceinthecreditriskoftheissuerandthatimpliedbythereferencerate.?Requiredmargin:theyieldspreadover,orunder,theratesuchthattheFRNispricedatparvalueonarateresetBondBond?Ifquotedmargin>requiredmargin,FRNswillbepricedat?Ifquotedmargin=requiredmargin,FRNswillbepricedat?Ifquotedmargin<requiredmargin,FRNswillbepricedBond?Discountratesoradd-onratesareusedforquotedBond?Discountratesoradd-onratesareusedforquotedmoneymarketrates.?Discountratesusuallyuse