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.
State the several goals for the organisation As there could be several goals for the organisation, we must try and summarise theorganisational goals in financial terms so that
Example based on Valuation of Shares Share capital details & Types of Share Hatsun Agro private limited (HAPL) as on March 2008 had a total authorized share capital worth
Q. What do you mean by Equity? Equity - Residual INTEREST in ASSETS of an entity which remains after deducting its LIABILITIES. Additionally, amount of a business' total assets
What are the Government Securities Government is one of the biggest borrowers from capital and money market. We have already taken a look at money market securities offered by
Explain the Efficient Capital Market and Capital Structure Theories? Briefly Explain the following expressions: (1) Efficient Capital Market, (2) Capital Structure Theori
Primary Market In an economy, at a given point of time, there will be people/entities called savers the surplus units, whose current income exceeds their current expenditure whi
In 1952, to provide equilibrium between assets and liabilities of insurance companies, Frank Redington, an English actuary, proposed interest rate immunization te
Types of Traders in Future and Option Markets: Hedgers Hedgers use the futures and options market principally for risk management purposes because of their exposure to pri
Q. Explain Inventory approach to cash management? This method analysis cash in the same way as engine inventory such that EOQ models may be employed. In such conditions cash
Q. Show Factors influencing participation? Factors influencing participation: several research studies have shown that the intensity of participation depends on four factors.
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