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.
There are three parts to this question. Please answer all parts. The Chicken Company, a company with headquarters in Switzerland, has a receivable of one million euro, which it wil
A vailable bid capacity We saw the criterion that qualifies the bidder. Now we will learn about the bid capacity. There are chances that a bidder might acquire more contrac
Monetary Policy The Federal Reserve's goal is to regulate the growth of the monetary aggregates to ensure sufficient credit expansion to foster economic growth, without inflati
QUESTION The Managing Director of your firm is thinking aloud about an appropriate gearing level for the company: "The consultants I spoke to yesterday explained that some t
Q. Explain demerits of accept-reject criteria? Demerits of ARR:- (i) It utilizes accounting income rather than cash flows: - The principal short coming of ARR schema is th
Compound options are usually cheaper than vanilla options and we know that there are four main types of compound options: a call on a call; a put on a call; a call on a put; a put
The securing of the working capital needed for the support of raises in accounts receivable and inventory related with an organizations initial expansion time.
Define intermediation . The monetary system makes it possible for deficit and surplus economic units to come together exchanging funds for securities to their mutual benefit.
The following guidelines are applicable for the issue of Fully Convertible Debentures (FCDs), Partly Convertible Debentures (PCDs) and Non-conve
use the operating cycle to formulate a broiler business
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