Chapter 10Bond Markets(金融市场学)
第十章 金融衍生市场 《金融市场学》PPT课件
2）远期外汇合约
远期外汇合约是指双方约定在将来某一时间按约定的远期利率买卖
一定金额的某种外汇的合约。
【例10—2】某日本公司为了购买一批美国原材料而借入一笔美元贷款100万 美元，同时公司需要在6个月后支付一笔美元的利息费用，当前6个月期的美 元年利率为0.6875%，该公司决定用日元收入通过外汇市场兑换成美元来支 付利息，即期汇率为119.35日元／1美元，由于担心未来日元贬值，那么公 司为了支付美元利息可能需要更多的日元，使其承担更多的融资成本。这时 该公司可以通过远期外汇交易锁定汇率。
（4）其金额和到期日都是灵活的，有时只对合约金额最小额度做出
规定，到期日经常超过期货的到期日。
2
10.1 远期合约
10.1.2 远期合约的种类
第 10 章 金融衍生市场
1）远期利率协议
远期利率协议是买卖双方同意从未来某一商定的时期开始在某一特 定时期内按协议利率借款一笔数额确定，以具体货币表示的名义本 金的协议。
杠杆在判断正确时确实是个好东西，能扩大利润，加速财富积累； 但一旦判断失误，损失也是成倍的。因此，对杠杆需小心使用。
16
10.3 期货
10.3.4 期货合约的作用
第 10 章 金融衍生市场
2）套期保值
套期保值分为卖出套期保值和买入套期保值。
卖出套期保值（空头保值）是对标的物的未来价格预期呈悲观态度， 卖出期货合约以防止价格下降造成的资本损失。
不得不以市场利率借款，即7％借款。借款6个月后，他不得不多支付3750美
元，即1 000 000美元×（7％－6.25％）＝1 000 000美元×0.0075=7 500美
元（一年），半年就是3 750美元。这就是远期利率协议产生的原因。
证券市场(the bond markets)
• The issuer of the bond is obligated to pay:
– Interest (or coupon) payments periodically usually semiannually – Par or face value (principal) at maturity
Bond
Date of maturity
票面利率 是指债券 上标明的利率即年利 息除以债券的票面价 值.
10-5
coupon
• Bonds represent long-term debt securities
– Contractual – Promise to pay future cash flows to investors
10-12
可转换公司债券
可转换债券 的特点
普通可转换公司债券具有债权性和期权性双重属性。 1、债权性质 可转换公司债券首先是一种公司债券，是固定收益证券， 具有确定的债券期限和定期息率，并为可转换公司债券投资者 提供了稳定利息收入和还本保证，因此可转换公司债券具有较 充分的债权性质。 2、股票期权性质 可转换公司债券为投资者提供了转换成股票的权利，这种 权利具有选择权的含义，也就是投资者既可以行使转换权，将 可转换公司债券转换成股票，也可以放弃这种转换权，持有债 券到期。
• Issued by government agencies: FHLB, FNMA (Fannie Mae), GNMA (Ginnie Mae), FHLMC (Freddie Mac)
Bond Markets in China
– Types of Bonds
– 记账式国债 – 凭证式国债
– 无记名式国债
第三章债券市场《金融市场学》PPT课件
三、债券的基本特征
债券作为一种重要的融资手段和金融工具,具 有如下特征:
一、收益性
债券投资者有获得利息收入和资本利得的权利
二、流动性
在到期之前,债券一般可以在流通市场上自由转让,迅速以较合 理的价格(接近市场价格)变现
三、偿还性
在债券还本付息日期到后,债券发行人按约定条件偿还本金并支 付利息。
四、安全性
1）揭示债务发行人的信用风险，降低交易成本。 2）信用评级是金融市场上的“身份证”与“通行证”。良好的信用等
级可以提升政府与企业的声誉，信用等级的高低决定了融资成本和融资 数量。 3）改善经营管理的外在压力和内在动力。企业信用等级向社会公告， 这就对企业有一定压力，将促进企业为获得优良等级而改善经营管理。 4）信用评级还可协助政府部门加强市场监管，有效防范金融风险。各 国的监管经验表明，政府监管部门采用信用评级结果的做法，有助于提 高信息透明度，有效防范金融风险。
券根据其要素组合的不同又可细分为不同的种类：
1)政府债券
政府债券是指中央政府、政府机构和地方政府发行的债券，它是以 政府的信誉作保证，其风险在各种投资工具中是最小的。政府债券根 据发行的部门不同又可细分为：
(1)中央政府债券。又称“金边债券”；享受税收优惠，利息收入免交 所得税。财政公债和建设公债，国债可分为固定利率公债和保值公债； (2) 政府机构债券。在美国、日本等国家，除了财政部外，一些政府机 构也可发行债券。 (3)地方政府债券。
二、信用评级机构
目前国际上公认的最具权威性的信用评级机构，主要 有美国标准普尔公司﹑穆迪投资者服务公司等。
1)美国标准普尔公司
该公司在1941年由标准统计公司及普尔出版公司合并而成，以“投资 者有知情权”为宗旨率先建立了金融信息业。标准普尔作为金融市场的 公认标准，提供被广泛认可的信用评级、独立分析研究、投资咨询等服 务。标准普尔提供的多元化金融服务中，标准普尔1200指数和标准普尔 500指数已经分别成为全球股市表现和美国投资组合指数的基准。该公司 同时为世界各地超过220,000家证券及基金进行信用评级。现在，标准普 尔已成为一个世界级的资讯品牌与权威的国际分析机构。
金融市场学(高教版)chapter_10
一、利率的含义
(二) 现值、终值与货币的时间价值
货币是有时间价值的。与货币的时间价值相联系的是 现值 (Present Value) 与终值 (Future Value) 概念。
@Copyright by Yichun Zhang, Zhenlong Zheng and Hai Lin, Department of Finance, Xiamen University, 2007
(二) 现值、终值与货币的时间价值 （续）
2．年金的现值和终值
普通年金的现值计算公式为:
PV
A[1 r
1
r1 rn
]
其中, A表示普通年金，r表示利率，n表示年金持续的 时期数。
普通年金的终值计算公式为：
FV A[1 rn 1]
r
@Copyright by Yichun Zhang, Zhenlong Zheng and Hai Lin, Department of Finance, Xiamen University, 2007
(三) 利率的基本含义―到期收益率
到期收益率，是指来自于某种金融工具的现 金流的现值总和与其今天的价值相等时的利 率水平,它可以从下式中求出：
P0
CF1 1 y
CF2
1 y2
CF3
1 y3
CFn
1 yn
n t 1
CFt
1 yt
其在中第t，期P0的表现示金金流融，工n具表的示当时前期市数价，，y表C示Ft 到表期示 收益率。
对于年金，如果P0代表年金的当前市价，C代表每期的 现金流，n代表期间数，y代表到期收益率，那么我们 可以得到下列计算公式：
P0
C 1 y
C (1 y)2
金融英语第十章答案
金融英语第十章答案Exercises of Chapter 10I. Answer the following questions in English.1.When is bond said to be selling at a premium and when is bond said to be selling at a discount?Ans: When a bond trades at a price above the face value,it is said to be selling at a premium. When a bond sells below face value, it is said to be selling at a discount.2.What is the most important source of risk for bonds in general? Ex plain.Ans: Interest rate risk is the number one source of risk to fixed-in come investors,because it's the major cause of price volatility in the bond market.3.What is the major advantage for municipal bonds?Ans: The major advantage to munis is that the returns are free from federal tax.4.What is the coupon?Ans: The coupon is the amount the bondholder will receive as inte rest payments.5.What are callable bonds?Ans: A bond that can be redeemed by the issuer prior to its maturit y. Usually a premium is paid to the bond owner when the bond is calle d. Also known as a "redeemable bond".6.How to classify fixed-income securities in general?Ans: In general, fixed-income securities are classified according to the length of timebefore maturity7.What are zero-coupon bonds?Ans: This is a type of bond that makes no coupon payments but instead is issued at aconsiderable discount to par value.8.What do bond brokers do for investors?Ans: A full service or discount brokerageⅡ. Fill in the each blank with an appropriate word o r expression.l. Interest Rate Risk is the number one source of risk to fixed-incom e investors,because it's the ( major )cause of price volatility in the bond market.2.In the ( case )of bonds, interest rate risk translates ( into ) marketrisk: The behavior of interest rate, in general, affects all bond s and cuts( across ) all sectors of the market-even the U.S. Treasury mar ket.3. When market interest rates rise, bond prices fall, and vice ver sa. And asinterest rates become more volatile,( so ) do bond prices.4. This is a type of bond that makes no coupon payments but( ins tead )isissued at a considerable discount to par value. For example, let's say a zero-coupon bond with a $1 000 par value and 10 years to maturity is( trading )at $ 600; you'd be paying $ 600 ( today )for a bond that wil l be worth$1 000 in 10 years.5. Bonds have a ( number )of characteristics of which youneed to be aware.All of these factors play a role in determining the value of a b ond and theextent to( which )it fits in your portfolio.6. In general, fixed-income securities are classified( according to )the length of timebefore maturity. These are the three main categories.III. Translate the following sentences into English.l.债券买卖是指交易双方以约定的价格买卖一定金额的债券并在规定的清算时间内办理债券款项交割的交易方式。
金融市场学CH8 The Bond Markets
Overview of Capital Markets
• Capital Market Participants
– 联邦和地方政府；联邦政府为国家债务融资，地方政府为某些工 程建设筹资。二者均不能发行股票，无股权出售。
– 公司：发行股票或者债券。公司成长面临的决策是发行债券或股
票融资？债券和股票在资本中的比重就是公司的资本结构(capital structure)。公司也可能在资本市场购买证券投资。
司仍愿发行可赎回债券。
Corporate Bonds
• 公司债券的特征：
– 可转换条款(conversion)，某些债券可转换为普通 股，使债券持有者能分享股价上涨的收益。可转 换债券会明确债券转换成股票的比率。
• 转换原因：股价上涨。可转换债券类似于持有普通债 券加股票期权。 • 可转换债券比不可转换债券价格高，价格高出部分反
Treasury Bonds
Municipal Bonds
Investing in Bonds
Corporate Bonds
Purpose of The Capital Market
• 货币市场参与者是为库存现金寻找短期投资机 会，在有好的投资机会时能随时获得资金；公 司和个人在资本市场上是进行长期投资。 • 个人和企业选择长期债务的主要原因是降低债 务清偿前利率上升的风险。而这种风险降低也 须一定成本，即风险溢价，大多数情形下长期 利率高于短期利率。
Interest and Principle Securities)。
– STRIPS把利息和本金分开交易，每一次现金流成为一个
单独的零息债券。如差5年到期的半年支付利息的国
债，可拆分成11个零息债券单独交易。 – 本息剥离债券也称零息债券。
金融市场学 第二版 陈善昂 第10章 金融资产价值分析
一般债券
• 定义 • 直接债券的内在价值公式
V c c c c A ... 2 3 ' T ' T 1 y ' 1 y ' 1 y ' 1 y 1 y (2)
其中，c是债券每期支付的利息，Ａ是本金，y’ 是必要收益率。
永续债券
考虑凸度的收益率变动幅度与价 格变动率之间的关系
• 考虑了凸度的收益率变动和价格变动关系：
dP 1 2 * D dy C dy P 2
• 当收益率变动幅度不太大时，收益率变动幅度 与价格变动率之间的关系就可以近似表示为 ：
P 1 2 * D y C y P 2
(7)
其中，假定对未来所有的预期现金流 选用相同的贴现率，V代表资产的内在价 值，Ct表示第t期的预期现金流，y是贴 现率。
股息贴现模型
• 股息贴现模型：收入资本化法运用于普通 股价值分析中的模型。 • 基本的函数形式：
息票率、市场利率与债券价格
价格：元 6000.00 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 0% 5% 10% 市场利率 15%
• 可以看出，债券价格与市场利率呈反方向关系， 市场利率越高，债券价格越低；市场利率变化越 大，债券价格变化越大。当市场利率等于息票率 时，债券价格等于面值。当市场利率等于零的时 候，债券价格等于各期利息和本金之和。
息票率为10%，面值1000元的各种期限债券在发行时的价格
价格：元 1200.00
1100.00
1000.00
900.00
800.00 0 5 10 债券期限（年） 15 20
• 该图描述了息票率为10%，期限为20年的债券在不同市场 利率和不同到期期限下的价格变化情况。如果市场利率高 于息票率，债券折价发行（即以低于面值的价格发行）； 如果市场低于息票率，债券溢价发行（即以高于面值的价 格发行）；两者相等，债券平价发行（即以面值发行）。
(完整word版)金融市场与金融机构基础 Fabozzi Chapter10(word文档良心出品)
Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones)Chapter 10 The Level and Structure of Interest RatesMultiple Choice Questions1 The Theory of Interest Rates1) An interest rate is the price paid by a ________ to a ________ for the use of resources during some interval.A) borrower; debtorB) lender; creditorC) borrower; lenderD) lender; borrowerAnswer: CComment: An interest rate is the price paid by a borrower (or debtor) to a lender (or creditor) for the use of resources during some interval.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.1 Fisher's classical approach to explaining the level of the interest rate2) By the ________, we mean the rate on a loan whose borrower will not default on any obligation.A) risk-free rateB) short termC) real rateD) long termAnswer: AComment: The interest rate that provides the anchor for other rates is the short-term rate:risk-free plus real rate. By short term, we mean the rate on a loan that has one year to maturity. (All other interest rates differ from this rate according to particular aspects of the loan, such as its maturity or risk of default, or because of the presence of inflation.) By the risk-free rate, we mean the rate on a loan whose borrower will not default on any obligation. By the real rate, we mean the rate that would prevail in the economy if the average prices for goods and services were expected to remain constant during the loan’s life.Diff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.4 the structure of Fisher's Law, which states that the nominal and observable interest rate is composed of two unobservable variables; the real rate of interest and the premium for expected inflation3) By the ________, we mean the rate that would prevail in the economy if the average prices for goods and services were expected to remain constant during the loan's life.A) risk-free rateB) short termC) real rateD) long termAnswer: CComment: The interest rate that provides the anchor for other rates is the short-term rate:risk-free plus real rate. By short term, we mean the rate on a loan that has one year to maturity. (All other interest rates differ from this rate according to particular aspects of the loan, such as its maturity or risk of default, or because of the presence of inflation.) By the risk-free rate, we mean the rate on a loan whose borrower will not default on any obligation. By the real rate, we mean the rate that would prevail in the economy if the average prices for goods and services were expected to remain constant during the loan’s life.Diff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.4 the structure of Fisher's Law, which states that the nominal and observable interest rate is composed of two unobservable variables; the real rate of interest and the premium for expected inflation4) By the ________, we mean the rate on a loan that has one year to maturity.A) risk-free rateB) short termC) real rateD) long termAnswer: BComment: The interest rate that provides the anchor for other rates is the short-term rate:risk-free plus real rate. By short term, we mean the rate on a loan that has one year to maturity. (All other interest rates differ from this rate according to particular aspects of the loan, such as its maturity or risk of default, or because of the presence of inflation.) By the risk-free rate, we mean the rate on a loan whose borrower will not default on any obligation. By the real rate, we mean the rate that would prevail in the economy if the average prices for goods and services were expected to remain constant during the loan’s life.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.1 Fisher's classical approach to explaining the level of the interest rate5) Which of the below statements about consumptions and savings is FALSE?A) A chief influence on the saving decision is the individual's marginal rate of time preference, which is the willingness to trade some consumption now for more future consumption.B) Generally, higher current income means the person will save more, although people with the same income may have different time preferences.C) A variable affecting savings is the reward for saving, or the rate of interest on loans that savers make with their unconsumed income.D) The total savings (or the total supply of loans) available at any time is the sum of everybody's savings and a negative function of the interest rate.Answer: DComment: The total savings (or the total supply of loans) available at any time is the sum of everybody’s savings and a positive function of the interest rate.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.2 the role in Fisher's theory of the saver's time preference and the borrowing firm's productivity of capital6) Which of the below statements about the rate of interest and cost of capital is FALSE?A) The maximum that a firm will invest depends on the rate of interest, which is the cost of loans; the firm will invest only as long as the marginal productivity of capital exceeds or equals the rate of interest.B) Firms will reject only projects whose gain is not less than their cost of financing.C) The firm's demand for borrowing is negatively related to the interest rate; if the rate is high, only limited borrowing and investment make sense.D) At a low rate of interest, more projects offer a profit, and the firm wants to borrow more; his negative relationship exists for each and all firms in the economy.Answer: BComment: The maximum that a firm will invest depends on the rate of interest, which is the cost of loans. The firm will invest only as long as the marginal productivity of capital exceeds or equals the rate of interest. In other words, firms will accept only projects whose gain is not less than their cost of financing. Thus, the firm’s demand for borrowing is negatively related to the interest rate. If the rate is high, only limited borrowing and investment make sense. At a low rate, more projects offer a profit, and the firm wants to borrow more. This negative relationship exists for each and all firms in the economy.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.2 the role in Fisher's theory of the saver's time preference and the borrowing firm's productivity of capital7) The ________ rate of interest is determined by interaction of the supply and demand functions. As a cost of borrowing and a reward for lending, the rate must reach the point where total supply of savings ________ total demand for borrowing and investment.A) equilibrium; is greaterB) minimum; equalsC) equilibrium; equalsD) minimum; is greaterAnswer: CDiff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.3 the meaning of equilibrium and how changes in the demand and supply function affect the equilibrium level of the interest rate8) In the absence of inflation, the nominal rate ________ the real rate.A) equalsB) is greater thanC) is less thanD) greater than or equal toAnswer: ADiff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.3 the meaning of equilibrium and how changes in the demand and supply function affect the equilibrium level of the interest rate9) The relationship between inflation and interest rates is the well-known Fisher's Law, which can be expressed this way: (1 + i) = (1 + r) × (1 + i) where ________.A) r is the nominal rate.B) i is the real rate.C) p is the expected percentage change in the price level of goods and services over the loan's life.D) the nominal rate, p, reflects both the real rate and expected inflation.Answer: CComment: The relationship between inflation and interest rates is the well-known Fisher’s Law, which can be expressed this way: (1 + i) = (1 + r) × (1 + i) where i is the nominal rate, r is the real rate, and p is the expected percentage change in the price level of goods and services over the loan’s life. This equation shows that the nominal rate, i, reflects both the real rate and expected inflation.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.4 the structure of Fisher's Law, which states that the nominal and observable interest rate is composed of two unobservable variables; the real rate of interest and the premium for expected inflation10) Which of the below IS considered by Fisher's theory.A) Fisher's theory takes into account the power of the government (in concert with depository institutions) to create money.B) Fisher's theory considers the government's often large demand for borrowed funds, which is frequently immune to the level of the interest rateC) Fisher's theory takes into account the possibility that individuals and firms might invest in cash balances.D) Fisher's theory considers an interest rate on loans that embodies no premium for default risk because borrowing firms are assumed to meet all obligations.Answer: DComment: Fisher’s theory is a general one and obviously neglects certain practical matters, such as the power of the government (in concert with depository institutions) to create money and the government’s often la rge demand for borrowed funds, which is frequently immune to the level of the interest rate. Also, Fisher’s theory does not consider the possibility that individuals and firms might invest in cash balances. Expanding Fisher’s theory to encompass these situations produces the loanable funds theory of interest rates.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.4 the structure of Fisher's Law, which states that the nominal and observable interest rate is composed of two unobservable variables; the real rate of interest and the premium for expected inflation11) The loanable funds theory of interest rates proposes that the general level of interest rates is determined by the complex interaction of two forces. Which of the below is ONE of these forces?A) One force is that the total demand for funds by firms, governments, and households (or individuals) is negatively related to the interest rate including the government's demand.B) One force affecting the level of the interest rate is the total supply of funds by firms, governments, banks, and individuals with rising rates causing banks to be less eager to extend more loans.C) One force is that the total demand for funds by firms, governments, and households (or individuals) is positively related to the interest rate except the government's demand.D) One force affecting the level of the interest rate is the total supply of funds by firms, governments, banks, and individuals with rising rates causing firms and individuals to save and lend more.Answer: DComment: The loanable funds theory of interest rates proposes that the general level of interest rates is determined by the complex interaction of two forces. The first is the total demand for funds by firms, governments, and households (or individuals), which carry out a variety of economic activities with those funds. This demand is negatively related to the interest rate (except for the government’s demand, which may frequently not depend on the level of the interest rate). The second force affecting the level of the interest rate is the total supply of funds by firms, governments, banks, and individuals. Supply is positively related to the level of interest rates, if all other economic factors remain the same. With rising rates, firms and individuals save and lend more, and banks are more eager to extend more loans. (A rising interest rate probably does not significantly affect the government’s supply of savings.)Diff: 3Topic: 10.1 The Theory of Interest RatesObjective: 10.5 the loanable funds theory, which is an expansion of Fisher's theory12) The ________, originally developed by John Maynard Keynes,analyzes the equilibrium level of the interest rate through the interaction of the supply of money and the public's aggregate demand for holding money.A) loanable funds theory of interest ratesB) expectation theory of interest ratesC) liquidity preference theoryD) Fisher theoryAnswer: CDiff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.6 the meaning of liquidity preference in Keynes's theory of the determination of interest rates13) The public (consisting of individuals and firms) holds money for several reasons. Which of the below is three of these?A) Difficulty of translations, precaution against expected events, and speculation about possible rises in the interest rate.B) Ease of transactions, precaution against unexpected events, and speculation about possible rises in the interest rate.C) Ease of unexpected events, precaution against transactions, and speculation about possible rises in the interest rate.D) Speculation about transactions, fear against unexpected events, and precaution about possible rises in the interest rate.Answer: BDiff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.6 the meaning of liquidity preference in Keynes's theory of the determination of interest rates14) The ________ represents the initial reaction of the interest rate to a change in the money supply.A) Income effectB) Price expectation effectC) Liquidity effectD) Interest rate effectAnswer: CDiff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.7 how an increase in the money supply can affect the level of the interest rate through an impact on liquidity, income, and price expectations15) Which of the below statements is FALSE?A) Although an increase in the money supply is an economically expansionary policy, the resultant increase in income depends substantially on the amount of slack in the economy at the time of the Fed's action.B) In Fisher's terms, the interest rate reflects the interaction of the savers' marginal rate of time preference and borrowers' marginal productivity of capital.C) Changes in the money supply can affect the level of interest rates through the liquidity effect, the income effect, and the price expectations effect; their relative magnitudes depend upon the level of economic activity at the time of the change in the money supply.D) Because the price level (and expectations regarding its changes) affects the money demand function, the liquidity effect is an increase in the interest rate.Answer: DComment: Because the price level (and expectations regarding its changes) affects the money demand function, the price expectations effect is an increase in the interest rate.Diff: 2Topic: 10.1 The Theory of Interest RatesObjective: 10.7 how an increase in the money supply can affect the level of the interest rate through an impact on liquidity, income, and price expectations2 The Determinants of the Structure of Interest Rates1) A ________ is an instrument in which the issuer (debtor/borrower) promises to repay to the lender/investor the amount borrowed plus interest over some specified period of time.A) bondB) common stockC) preferred stockD) T-billAnswer: ADiff: 1Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.8 the features of a bond issue2) The ________ should reflect the coupon interest that will be earned plus either (1) any capital gain that will be realized from holding the bond to maturity, or (2) any capital loss that will be realized from holding the bond to maturity.A) yield on a bond investmentB) dividend yield on a bond investmentC) bid-ask spreadD) yield on a stock investmentAnswer: ADiff: 1Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.8 the features of a bond issue3) The ________ the market price, the higher the yield to maturity.A) higherB) less riskyC) more safeD) lowerAnswer: DDiff: 1Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.8 the features of a bond issue4) The ________ of a bond is the amount that the issuer agrees to repay the bondholder at the maturity date.A) principal value (or simply principal)B) face valueC) redemption valueD) All of theseAnswer: DComment: The principal value (or simply principal) of a bond is the amount that the issuer agrees to repay the bondholder at the maturity date. This amount is also referred to as the par value, maturity value, redemption value, or face value.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.8 the features of a bond issue5) The yield to maturity is determined by a trial-and-error process. The first step in this trial and error process is ________.A) Compute the present value of each cash flow using the best guess interest rate.B) Total the present value of the cash flows using the best guess interest rate.C) Select an interest rate.D) Compare the total present value using the best guess interest rate with the market price of the bond.Answer: CComment: The yield to maturity is determined by a trial-and-error process. Even the algorithm in a calculator or computer program, which computes the yield to maturity (or internal rate of return) in an apparently direct way, uses a trial-and-error process. The steps in that process are as follows:Step 1: Select an interest rate.Step 2: Compute the present value of each cash flow using the interest rate selected in Step 1. Step 3: Total the present value of the cash flows found in Step 2.Step 4: Compare the total present value found in Step 3 with the market price of the bond and, if the total present value of the cash flows found in Step 3 is• equal to the market price, then the interest rate used in Step 1 is the yield to maturity;• greater than the market price, then the interest rate is not the yield to maturity. Therefore, go back to Step 1 and use a higher interest rate;• less than the market price, then the interest rate is not the yield to maturity. Therefore, go back to Step 1 and use a lower interest rate.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.9 how the yield to maturity of a bond is calculated6) There are several interesting points about the relationship among the coupon rate, market price, and yield to maturity. Which of the below is NOT one of these.A) If the market price is equal to the par value, then the yield to maturity is equal to the coupon rate.B) If the market price is less than the par value, then the yield to maturity is greater than the coupon rate.C) If the market price is greater than the par value, then the yield to maturity is greater than the coupon rate.D) If the market price is greater than the par value, then the yield to maturity is less than the coupon rate.Answer: CComment: There are several interesting points about the relationship among the coupon rate, market price, and yield to maturity as summarized below.1. If the market price is equal to the par value, then the yield to maturity is equal to the coupon rate;2. If the market price is less than the par value, then the yield to maturity is greater than the coupon rate, and;3. If the market price is greater than the par value, then the yield to maturity is less than the coupon rate.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.9 how the yield to maturity of a bond is calculated7) Consider an 20-year bond with a coupon rate of 8% and a par value of $1,000. The cash flow for this bond is ________ every six months for the first 39 semi-annual periods and then________ for the last (or 40th) six-month period.A) $1,040; $40B) $40; $1,040C) $80; $1,080D) $80; $1,000Answer: BComment: Consider an 20-year bond with a coupon rate of 8% and a par value of $1,000. The cash flow for this bond is $40 every six months for the first 39 semi-annual periods and then $1,040 for the last (or 40th) six-month period.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.8 the features of a bond issue8) The difference between the yield on any two bond issues is called a ________.A) yield differenceB) difference spreadC) coupon rate spreadD) yield spreadAnswer: DDiff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.13 what factors affect the yield spread between two bonds9) Treasury securities are used to develop the benchmark interest rates. There are two categories of U.S. Treasury securities: ________.A) discount and coupon securities.B) discount and coupon stocks.C) interest rate and coupon securities.D) discount and compound securities.Answer: ADiff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.1 Fisher's classical approach to explaining the level of the interest rate10) The most recently auctioned Treasury issues for each maturity are referred to as ________.A) off-the-run issues or current coupon issues.B) minimum interest rate or base interest rateC) on-the- run or current coupon issues.D) benchmark interest rate or minimum interest rate.Answer: CComment: The most recently auctioned Treasury issues for each maturity are referred to as on-the- run or current coupon issues. Issues auctioned prior to the current coupon issues are typically referred to as off-the- run issues; they are not as liquid as on-the-run issues, and, therefore, offer a higher yield than the corresponding on-the-run Treasury issue. The minimum interest rate or base interest rate that investors will demand for investing in a non-Treasury security is the yield offered on a comparable maturity on-the-run Treasury security. The base interest rate is also referred to as the benchmark interest rate.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.10 why historically the yields on securities issued by the U.S. Department of the Treasury have been used as the benchmark interest rates throughout the world11) Market participants talk of interest rates on non-Treasury securities as ________ to a particular on-the-run Treasury security (or a spread to any particular benchmark interest rate selected). This spread reflects the additional risks the investor faces by acquiring a security thatis not issued by the U.S. government and, therefore, can be called a ________.A) "trading at a premium"; risk premiumB) "trading at a spread"; risk premiumC) "trading at a premium"; risk spreadD) "trading at a discount"; discount premiumAnswer: BComment: Market participants talk of interest rates on non-Treasury securities as “trading at a spread” to a particular on-the-run Treasury security (or a spread to any particular benchmark interest rate selected). For example, if the yield on a 10-year non-Treasury security on May 20, 2008, is 4.78%, then the spread is 100 basis points over the 3.78% Treasury yield. This spread reflects the additional risks the investor faces by acquiring a security that is not issued by the U.S. government and, therefore, can be called a risk premium.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.13 what factors affect the yield spread between two bonds12) The factors that affect the spread include ________.A) the type of issuer and the expected liquidity of the issueB) the provisions that grant either the issuer or the investor the obligation to do something and the taxability of the interest received by the issuerC) the investor's perceived creditworthiness and the term or maturity of the investor's horizon.D) All of theseAnswer: AComment: The factors that affect the spread are (1) the type of issuer, (2) the issuer’s perceived creditworthiness, (3) the term or maturity of the instrument, (4) provisions that grant either the issuer or the investor the option to do something, (5) the taxability of the interest received by investors, and (6) the expected liquidity of the issue.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.13 what factors affect the yield spread between two bonds13) Within the corporate market sector, issuers are classified as ________.A) (1) utilities, (2) industrials, (3) finance, and (4) banks.B) (1) high-risk, (2) medium-risk, (3) low-risk, and (4) no-risk.C) (1) foreign, (2) domestic, (3) European, and (4) Asian.D) (1) intramarket, (2) extramarket, (3) ultramarket, and (4) intermarket.Answer: AComment: Within the corporate market sector, issuers are classified as follows: (1) utilities, (2) industrials, (3) finance, and (4) banks.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.12 the different types of bonds14) The highest-grade bonds are designated by Moody's by the symbol ________.A) BaB) AC) AaD) AaaAnswer: DComment: In all systems, the term high grade means low credit risk, or conversely, high probability of future payments. The highest-grade bonds are designated by Moody’s by the symbol Aaa, and by S&P and Fitch by the symbol AAA. The next highest grade is denoted by the symbol Aa (Moody’s) or AA (S&P and Fitch); for the third grade, all rating systems use A. The next three grades are Baa or BBB, Ba or BB, and B, respectively. There are also C grades. Moody’s uses 1, 2, or 3 to provi de a narrower credit quality breakdown within each class, andS&P and Fitch use plus and minus signs for the same purpose.Diff: 1Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.12 the different types of bonds15) Which of the below statements is FALSE?A) The spread between Treasury securities and non-Treasury securities that are identical in all respects except for credit quality is referred to as a credit spread.B) The spread between any two maturity sectors of the market is called a maturity spread or yield curve spread.C) An option that is included in a bond issue is referred to as a prepayment option.D) The most common type of option in a bond issue is a call provision.Answer: CComment: It is not uncommon for a bond issue to include a provision that gives either the bondholder and/or the issuer an option to take some action against the other party. An option that is included in a bond issue is referred to as an embedded option.Diff: 2Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.12 the different types of bondsTrue/False Questions1 The Theory of Interest Rates1) The liquidity preference theory is Keynes's view that the rate of interest is set in the market for money balances.Answer: TRUEDiff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.6 the meaning of liquidity preference in Keynes's theory of the determination of interest rates2) Interest is the price paid for the permanent use of resources, and the amount of a loan is its principal.Answer: FALSEComment: Interest is the price paid for the temporary use of resources, and the amount of a loan is its principal.Diff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.7 how an increase in the money supply can affect the level of the interest rate through an impact on liquidity, income, and price expectations3) In Fisher's terms, the interest rate reflects the interaction of the savers' marginal productivity of capital and borrowers' marginal rate of time preference.Answer: FALSEComment: In Fisher’s terms, the interest rate reflects the interaction of the savers’ marginal rate of time preference and borrowers’ marginal productivity of capital.Diff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.2 the role in Fisher's theory of the saver's time preference and the borrowing firm's productivity of capital4) The loanable funds theory is an extension of Fisher's theory and proposes that the equilibrium rate of interest reflects the demand and supply of funds, which depend on savers' willingness to save, borrowers' expectations regarding the profitability of investing, and the government's action regarding money supply.Answer: TRUEDiff: 1Topic: 10.1 The Theory of Interest RatesObjective: 10.5 the loanable funds theory, which is an expansion of Fisher's theory2 The Determinants of the Structure of Interest Rates1) Convertible bonds are securities issued by state and local governments and by their creations, such as "authorities" and special districts.Answer: FALSEComment: Municipal bonds are securities issued by state and local governments and by their creations, such as “authorities” and special districts.Diff: 1Topic: 10.2 The Determinants of the Structure of Interest RatesObjective: 10.11 the reason why the yields on U.S. Treasury securities are no longer as popular as benchmark interest rates and what alternative benchmarks are being considered by market participants。
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U. S. Treasury Bonds
Issued by the U.S. Treasury to finance federal government expenditures Maturity
Notes, < 10 Years Bonds, > 10 to 30 Years
Active OTC Secondary Market Semiannual Interest Payments Benchmark Debt Security for Any Maturity
Municipal Bonds
State and local government obligations
Revenue bonds vs. general obligation Bonds
Investor interest income exempt from federal income tax
Background on Bonds
Bond Yield to Maturity
The yield to maturity (YTM) is the yield that equates the future coupon and principal payments with the bond price
CHAPTER10 Bond Markets
Chapter Objectives
Provide informational background on U.S. Treasury, state and municipal, and corporate Bonds Calculate bond yield from quote Explain the role of bonds to institutional investors Discuss the globalization of bond markets
Background on Bonds
Bonds represent long-term debt securities
Contractual Promise to pay future cash flows to investors
The issuer of the bond is obligated to pay:
Stripped Treasury bonds
Zero-coupon
securities are sold with claims on U. S. Treasury bonds held in a trust
One security represents the principal payment (np) at maturity Other securities represents the interest payments (ci) at interest paying dates
Corporate Bonds
Corporate Bond Terminology
Indenture
Legal
document specifying rights and obligations of issuer and bondholder bondholders to assure compliance with
Usually pay semiannual interest Most have maturities between 10-30 years Public offering vs. private placement Limited exchange, larger OTC secondary market Investors seek safety of principal and steady income
Interest (or coupon) payments periodically usually semiannually Par or face value (principal) at maturity
Primary vs. secondary market for bonds
Background on Bonds
Background on Bonds
Bonds by Issuers
Issuer Federal Government (U.S. Treasury) Federal Agencies State and Local Governments Corporations Type of Bond Treasury Bonds Federal Agency Bonds Municipal Bonds Corporate Bonds
Federal Agency Bonds
Government National Mortgage Association (GNMA)
Issues bonds and uses proceeds to purchase insured FHA A U.S. Government Agency Backed by explicit guarantee of Federal Government Example of social allocation of capital
Corporate Bonds
Corporate Bond Terminology
Call provisions: Ability to pay bonds off early
Call
premium Advantage to issuers; disadvantage to investor
Treasury Bonds
Inflation-Indexed Bonds
Intended for investors who seek inflation protection with their investments Coupon rates less than other Treasuries Principal value adjusted for the U.S. inflation rate (CPI) every 6 months Coupon income increases with inflation
$1033.44 PV*
Calc YTM
*Ask
Price = 103 and 11/32 % of Face Value or $1033.4375
Treasury Bonds
Cash Flow Variation in T-Bonds
Coupon bonds
Interest
paid semiannually To registered bondholders
Example:
Bid price 103:05, Ask price 103:11
Yield to Maturity (YTM)
U. S. Treasury Bond Yield To Maturity
$83.80 Pmt
2013 – Today =N
$1000 Ask Price = FV
Variable-rate bonds Convertible bonds
Corporate Bonds
Junk Bonds
Junk bonds are also called high-yield bonds or noninvestment rated bonds Popularized in the direct finance boom of the 1980s The risk premium is between three and seven percent above Treasury bonds and susceptible to contagion effects Secondary market supported by dealer market
Corporate Bonds
Corporate Bond Terminology
Low-coupon and zero-coupon bonds
Provide
investors known rate of return Imputed interest income taxed if not in tax-sheltered investment plan Attractive to pension funds with expected payouts
Protective Covenants
Places
restrictions on the firm to protect bondholders Examples: limits dividends and officer salaries, restricts additional debt
Bond collateral
Usually
consists of a mortnsecured bonds are called debentures and are backed only by the general credit of the issuing firm
Trustee
Represents
indenture
Corporate Bonds
Corporate Bond Terminology
Sinking Fund Provision
Requirement
that the firm retire a certain amount or number of bonds each year Protects investors with principal reduction