Bonds (1).pptx
Transcript of Bonds (1).pptx
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Bonds
F. NADEEM MERCHANT
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Presented ByName Roll NO.
Adil Shaikh 20
Afrin chaudhri 25
Shahrukh kinnariwala 29
Masihuddin khan 30
Amrin patel 31
Hussain shaikh 35
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Meaning of Bonds
A bond is a contract that requires the borrower to pay the interest incom
resembles the promissory note issued by the government and the cor
value of the bond indicates the face value of the bond i.e., the value sta
paper. Generally, the face values of the bonds are Rs.1000 , Rs.2000 , Rs
Most of the bonds make fixed interest payment till the maturity period.
of interest is known as Coupon Rate. Coupons are paid quarterly, s
annually. At the end of the maturity period, the value is repaid.
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Features of Bonds
Repaymentof PrincipalIndenture
MaturitiesTime
Period
InterestPayment
Pledge ofSecurity
Call
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Types of Bonds
Corporate Bonds
Premium Bonds
Discount Bonds
Investment Bonds
Fixed Income Bonds
Government Bonds
Convertible Bonds
Mortgager Bonds
High Yield Bonds
Municipal Bonds
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Calculate Bond Price
Bond valuation includes calculating the present value of the bond's future interepayments, also known as its cash flow, and the bond's value upon maturity, also knowas its face value or par value.
Par Value : 10,000
Settlement Date : 10/8/2014
Maturity Date : 11/10/2016Annual Rate : 15%
Yield : 10%
Redemption Value : 15000
Payments : Semi-Annually
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Calculated
Price: $14,997.31
Prev Coupon Date: 05/10/2014
Next Coupon Date: 11/10/2014
Coupon Days: 180
Coupon Days Past: 148
Next Coupon (days): 32
Number of Coupons: 5
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Risks Involved with Bonds
Interest-Rate Risks
Reinvestment Risks
Call Risks
Credit Risk
Inflation Risks
Exchange-Rate Risks
Liquidity Risks
Volatility Risks
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Term Structure of Interests Rates
The relationship between interest rates or bond yields and different terms or maturities. The
term structure of interest rates is also known as a yield curve and it plays a central role in an
economy. The term structure reflects expectations of market participants about future change
in interest rates and their assessment of monetary policy conditions.
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Theories Behind Term Structure
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Determinants ofInterest Rates
Monetary & Credit Policy
Inflation
Effect of GlobalizationFed
Watching
Uncertainty
Growth in the Economy
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Forward Rate Agreements
Forward Rate Agreement(FRA) is a forward contract
between two parties to exchange an interest rate differential
on a notional principal amount at a given future date in
which one party, the Long, agrees to pay a fixed interest
payment at a quoted contract rate and receive a floating
interest payment at a reference rate (Underlying rate).
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Characteristic of FRA
Structure issame for allcurrencies
FRAs mature ina certain
number ofdays
Contractcovers anotionalamount
FRA may settlein fewer days
Quotes
Contractexpiring
30 days LIBOR
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Use of FRA
By market participant who wish to hedge against future interest rat
risks by setting the future interest rate today
By market participant who want to make profits based on theirexpectations of the future development of interest rates.
By market participants
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Introduction to Swaps
A swap is a contract calling for an exchangeof payments, on one or more dates,
determined by the difference in two prices.
A swap provides a means to hedge astreamof risky payments.
A single-payment swap is the same thing as acash-settled forward contract.
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Characteristics of Swaps
Basically aForward
DoubleCoincidence
of wants
ComparativeCredit
Advantages
FlexibilityNecessity of an
IntermediarySettlem
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Types of Swaps
InterestRatesSwaps
CurrencySwaps
CommoditySwaps
EquitySwaps
Basis RatesSwaps
DifferentialSwaps
CreditDefaultSwaps
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Functions of SwapTransactions
FinancingFunction
ArbitrageFunction
HedgingFunction