By Moorad Choudhry
The bond markets are an essential component of the realm economic system. The fourth variation of Professor Moorad Choudhry's benchmark reference textual content An advent to Bond Markets brings readers modern with most up-to-date advancements and marketplace perform, together with the effect of the monetary difficulty and problems with relevance for traders. This publication deals a close but available examine bond tools, and is aimed particularly at rookies to the marketplace or these unexpected with smooth mounted source of revenue items. the writer capitalises on his wealth of expertise within the fastened source of revenue markets to provide this concise but in-depth insurance of bonds and linked derivatives.
Topics lined include:
- Bond pricing and yield
- Duration and convexity
- Eurobonds and convertible bonds
- Structured finance securities
- Interest-rate derivatives
- Credit derivatives
- Relative worth trading
Related issues resembling the cash markets and ideas of threat administration also are brought as useful historical past for college students and practitioners. The ebook is key examining for all those that require an advent to the monetary markets.
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Extra info for An Introduction to Bond Markets
In the UK, US and Japan the usual practice is for the issuer to pay the coupon in two semi-annual instalments. For bonds issued in European markets and the Eurobond market, coupon payments are made annually. Sometimes one will encounter bonds that pay interest on a quarterly basis. All bonds make periodic interest payments except for zero-coupon bonds. These bonds allow a holder to realise interest by being sold substantially below their principal value. The bonds are redeemed at par, with the interest amount then being the difference between the principal value and the price at which the bond was sold.
1, together with their prices. 1 matures in precisely 6 months. 50 and the redemption payment of $100. 65. 1, the 8% due 2001. This bond pays a coupon of $4 in 6 months, and in 1 year makes a payment of $104, consisting of another $4 coupon payment plus $100 return of principal. 89. As with the 6-month bond, the price is also its present value, equal to the sum of the present values of its total cash ﬂows. 982 13. 2. 2. 50 17 Discount factors calculated using the bootstrapping technique. 2 Hypothetical discount function.
In this equation the percentage for C is not expressed as a decimal. Current yield ignores any capital gain or loss that might arise from holding and trading a bond and does not consider the time value of money. It calculates the coupon income as a proportion of the price paid for the bond. For this to be an accurate representation of return, the bond would have to be more like an annuity than a ﬁxed-term instrument. Current yield is useful as a ‘rough and ready’ interest-rate calcula tion; it is often used to estimate the cost of or proﬁt from holding a bond for a short-term.
An Introduction to Bond Markets by Moorad Choudhry