Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Various bond features largely affect the degree of correlation between the bond's prices and the bond's interest rates. Some of the bond features that affect bond's interest rate risk are - maturity, coupon rate and embedded options.
Maturity Period: The degree of bond price sensitivity to its interest rate changes depends upon its maturity period. Longer the maturity period of the bond, greater would be the price sensitivity to change in the interest rate of the bond, assuming that all other factors to be constant.
Coupon Rate: Assuming that all other factors are constant, the degree of bond price sensitivity to its interest rate changes depends upon its coupon rate. Higher the coupon rate, lower is the degree of sensitivity to changes in interest rates and vice versa. Further, zero coupon bonds tend to have higher price sensitivity to interest rate changes compared to the bonds having a coupon rate.
Embedded Options: The value of the bond with embedded option will depend on how the value of the embedded option changes with the interest rates. For example, let us consider a callable bond. We know that when interest rates decrease, the price of an option-free bond increases. However, in a callable bond, an increase in price is not as much as it is in an option-free bond. Let us try to understand this by separating the price of a callable bond into two parts.
Price of callable bond = Price of option-free bond - Price of embedded call option
The price of embedded call option is deducted because it is of value to issuer; but for an investor it is a disadvantage. Therefore, the price of a callable bond is less when compared to the price of an option-free bond. Now, when interest rates decrease, the call option value increases because it becomes more valuable to the issuer; and when interest rate decreases, both the price of option-free bond and the price of call option increase. This results in a relatively lesser change in the price of a callable bond when compared to the change in the price of option-free bond.
the importance of a balanced capital structure and the problems which are associated with high levels of gearing
Define Swap Broker A swap broker arranges a swap among two counterparties for a fee with no taking a risk position in the swap.
Q. What do you mean by Public deposits? Public deposits are the fixed deposited by the business enterprises directly from the company. This source of the raising the short term
Question 1: (a) Explain fully the following financial accounting techniques: i. Cash accounting ii. Accrual accounting iii. Fund accounting iv. B
Q. What do you mean by S Corporation? S Corporation - An S Corporation is a corporation that, under Internal Revenue Code, is normally not subject to federal income taxes. In i
Serene Hall ?? Assignment As a consequence of the high levels of stress being recorded in the UK, and a general shift towards a healthier more relaxed lifestyle, as an essential in
Q. What is Percentage of Sales Method? Percentage of Sales Method: - Under this process certain key ratios based on past year's information are established. These ratios is abl
Q. Evaluae new options within current organization? Evaluating having completed self marketing successfully to prospective employers it is time to analyze new options within cu
Financial Analysis Project: At the beginning of 2009, CanGo purchased the online gaming company. This purchase was for cash, paid for through the proceeds of the
Q. Basic objectives of cash management? The basic objectives of cash management are two-fold: 1) To meet the cash disbursement needs (payment schedule); and 2) To minimize f
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd