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.
T he acquisition strategy The most important strategic consideration is the size of the acquisition. The completion of smaller series should be considered in the beginning tha
Explain Dual Currency Bond A dual currency bond is a straight fixed-rate bond that is issued in one currency and pays coupon interest in that similar currency. At maturity, th
Illustrate the capital markets in maturity of the securities? On the basis of the maturity of the securities traded, capital markets can be introduced here: Capital markets
Which ratios would a potential long-term bond investor be most interested in? Explain. Potential and Current lenders of long-term funds, such as bondholders and banks, are con
Typically in a bond, we find an inverse relation between the price and the required yield. We know that the price of the bond is the present val
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 with this; first, the liqu
Financial intermediaries Financial intermediaries are significant to the efficient functioning of the financial markets as they act to bring the borrowers/companies and lenders
Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.
Time Series and Demand Forecasting The process of budgeting in many organizations starts with a forecast of demand for the products in the forthcoming year and the sales f
capital structure
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