By Moorad Choudhry
This booklet describes and defines bonds in the context of the capital markets and the different sorts of bonds which are traded. It incorporates a designated examine the analytical suggestions utilized in the industry by way of investors and fund managers. This new version will replace the part on swaps and probability administration, replace all workouts and examples, upload a brand new part on credits derivatives, upload a piece on established finance securities & upload a bit on buying and selling. Contents additionally contain: Bond yield dimension, rate of interest probability, the united kingdom gilt marketplace and company debt markets, probability administration, Off-balance sheet tools, together with swaps and concepts, and in a foreign country and rising markets.
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Extra resources for An introduction to bond markets
2. 2. 50 17 Discount factors calculated using the bootstrapping technique. 2 Hypothetical discount function. This technique of calculating discount factors, known as ‘bootstrapping’, is conceptually neat, but may not work so well in practice. Problems arise when you do not have a set of bonds that mature at precise 6-month intervals. Liquidity issues connected with individual bonds can also cause complications. , hard to buy or sell the bond, difficult to find) that do not reflect the market as a whole but peculiarities of that specific bond.
24). a. General formula: rma ¼ ð1 þ Interest rateÞm À 1 ð1:24Þ where m is the number of coupon payments per year. b. Formulas for converting between semiannual and annual yields: rma ¼ ð1 þ 12rms Þ2 À 1 h i 1 rms ¼ ð1 þ rma Þ2 À 1 Â 2 c. Formulas for converting between quarterly and annual yields: rma ¼ ð1 þ 14rmq Þ4 À 1 h i 1 rmq ¼ ð1 þ rma Þ4 À 1 Â 4 where rmq , rms and rma are, respectively, the quarterly, semiannually and annually discounted yields to maturity. 6 Example: comparing yields to maturity.
5. Can we check this on Excel? 5 Bloomberg page YA for Ford 734% 2007 bond, 3 Jan 2006. 6 C5 D 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Today Settlement Ford Settlement UST 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 Bond yield calculation, Ford and US Treasury securities, 3 January 2006. 6 Bloomberg page DCX, 3 January 2006, settlement date for Ford bond. 6. 6, which is Bloomberg page DCX with the relevant dates entered. We see that on the 30/360 basis the number of days accrued for the Ford bond for value 6 January 2006 is 39.