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- How accrued interest is calculated when a bond is purchased between coupon dates.
- How to calculate yield, forward rates, duration, convexity and other risk measures from bond prices and cash flows.
Swaps explained. Very useful for CFA and FRM level 1 preparation candidates. For a more detailed understanding, you can watch the webinar video on this topic. The link for the webinar video on this topic is https://www.youtube.com/watch?v=JKBKnxM2Nj4
It covers interest rate swaps, currency swaps & equity swaps along with their payouts.
It covers exchange of fixed rate instruments with floating rate instruments.
It will be helpful for students, exporters, importers & researchers.
Swaps explained. Very useful for CFA and FRM level 1 preparation candidates. For a more detailed understanding, you can watch the webinar video on this topic. The link for the webinar video on this topic is https://www.youtube.com/watch?v=JKBKnxM2Nj4
It covers interest rate swaps, currency swaps & equity swaps along with their payouts.
It covers exchange of fixed rate instruments with floating rate instruments.
It will be helpful for students, exporters, importers & researchers.
mefielding presents interest swaps made easy. Especially useful for accounting students or those who are considering using swaps and want to understand how they work
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mefielding presents interest swaps made easy. Especially useful for accounting students or those who are considering using swaps and want to understand how they work
INV3703 (Derivatives) - Discussion class slides (2012)Coert87
The slides form part of a discussion class presented to Unisa INV3703 students during September 2012. The prescribed textbook for this module is 'Analysis of Derivatives for the CFA program' by D Chance (2003)
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Fixed Income Securities Yield Measures.pptxanurag202001
Sources of Return
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Yield to Call
Yield to Put
Yield to Worst
Cash Flow Yield
Yield Measures for Floating Rate Notes
Yield Measures for Money Market Instruments
Theoretical Spot rates (Bootstrapping)
Derivation of Forward Rates
Yield Spreads
Riding the Yield Curve
Engineering Economy:
Simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent. It varies directly with time.
F = P + I = P + Prt
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Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
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Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
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https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
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Editable Toolkit to help you reuse our content: 700 Powerpoint slides | 35 Excel sheets | 84 minutes of Video training
This PowerPoint presentation is only a small preview of our Toolkits. For more details, visit www.domontconsulting.com
2. Contents
• Time value of money : Present Value, Future
Value and discount factors
• Bond Basics
• Accrued Interest
• Bond Pricing
• Spot, Forward, YTM
• Risk Measures: Duration, DV01, Convexity
3. Time value of money
• What would you rather have? A dollar now or
a dollar in the future ?
• Present value = Discount factor * Future Value
• If d(.5) =.99; present value of one dollar to be
received in 6 months is 99 cents.
4. Government Bond
• Example: May 2010, the US treasury sold a
bond with coupon of 2.125%, maturity date
May 31, 2015.
• Coupon = 1.125
• Maturity Date = 5/31/2015
• Notional = 1mm.
• Purchasing 1mm face amount of these entitles
the buyer to the schedule of payments as in
table on next slide
6. • How did we get $10,625?
Treasury promises to pay a coupon every six
months equal to half of the annual coupon
rate ie 2.125*1/2*1000000= $10,625
7. • The data on US treasury along with their coupon,
maturity and market prices is readily available.
• Almost all US treasuries settle T+1
– ie exchange of bond for cash happens one day after
the trade is done
• Price on treasury bond – mid market price
– Ie average of lower bid price where a trader can buy
and higher ask price where a trader can sell.
• Full price = flat / quoted / clean price + Accrued
Interest
8. Accrued Interest
• Say customer bought 10,000 face of UST 3.625 of
August 15, 2019 for settlement on June 1, 2010.
• Coupon will be 3.625/2*10000=181.25 on
February 15, 2010 and then August 15, 2010
• If the purchaser holds the bond to next coupon
date which is Aug 15, 2010, he is still not eligible
to collect the complete coupon from Feb to
August. He has held the bond only from June 1,
2010.
9. • Buyer should get 71/181 days of interest =
71/181*181.25=75.10
• Seller should get the rest 106/181 days of
interest= 106/181*181.25=106.15
• How do we divide the coupon?
• Market convention dictates that buyer keeps
the entire coupon but pays the seller 106.15
at the time of settlement.
10. • If the flat price of bond was 102-26 or
102+26/32; the full or invoice price would be
102.8125+1.0615=103.8740. For $10,000 face,
invoice price will be $10,387.40
Feb 15th 2010
Previous Coupon date
June 1st 2010
Settlement date
August 15th 2010
Next coupon date
106 Days 75 Days
12. DFs from Bond Prices
• For the first bond in the table, we can write,
• 100.550 = (100+1.125/2)*Df(.5)
• From this we can solve for the first DF(.5)
• For the second bond, we can write
• 104.513= 4.875/2*DF(.5)+(100+4.875/2)*DF(1)
• Thus we can solve for DF(1).
• Likewise we can extract all Dfs from these bond
prices because by definition, bond price is PV of
its future cashflows and PV= FV*DF
13. Price of the Bond
• Price of a bond say 4.875% of May 31, 2011
• = 4.875/2*DF(0.5) +(100+4.875/2)*DF(1)
• We know the DF(0.5) and DF(1).
14. Spot, Forward, YTM
• Spot rate is nothing but a rate on a spot loan.
• Denote the semi annually compounded t-year
spot rate by r(t), investing 1 unit of currency from
now to t years will be :
• (1+r(t)/2)^2t
• To link spot rates and DFs:
• If $1 grows to (1+r(t)/2)^2t in t years, $1 is the PV
and we can write
• (1+r(t)/2)^2t *DF = 1
• Thus DF = 1/ (1+r(t)/2)^2t
15. Forward Rate
• Suppose two parties agree to use a 5% interest rate for a
trade to take place six months from today. This is the
forward rate.
Suppose a two-year bond is yielding 10% while a one-year
bond is yielding 8%. The return produced from the two-
year bond is the same as if an investor receives 8% for the
one-year bond and then uses a rollover to roll it over into
another one-year bond at 12.04%. So the rate 1y forward
for 1 y = 12/04%
• [(1.10)^2/ (1.08)^1] - 1 = 12.04%. This hypothetical 12.04%
is the forward rate of the investment.
16. YTM
• Single yield when used to discount the
cashflows of a security gives market price of
that security!
Example of 4.5s of November 30,2011 was
105.856
Then one can write :
105.856 = 2.25/(1+y/2) +
2.25/(1+y/2)^2+102.25/(1+y/2)^3
17. DV01, Duration,Convexity
• DV01 measures dollar change in the value of
the security for a basis point change in
interest rates
• Duration measures the %change in the value
of the security for unit change in rates
18. Convexity
• Consider a second order taylor
approximations of the price –rate function
with respect to rates after a small change in
rates
• P(y+delta y) = P(y) + dP/dy*delta y
+1/2d^2P/dy^2*delta y^2
• Solving further, we get dp/p=-Ddy+1/2Cdy^2
• Where D is the duration and C is the convexity
• C = 1/P * d^2P/dy^2
19. Convexity related to Vol
• From second order Taylor series expansion,
we see that Convexity is always with dy^2,
positive convexity will always increase returns
so long as rates move
• Like wise, with negative convexity, returns will
always go down so long as rates move.
20. Effect of rates on duration
• Increasing Yield lowers DV01
– Increasing yield lowers PV of the payments but it
lowers the PV of longer payments the most, DV01
of these longer payments goes down more
relative to the value of the whole bond!
• Duration is measured In years so higher
duration means investor will have to wait
longer to realise coupon and principal