Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
The price-yield relationship of a non-callable or a non-putable bond is convex because price and yield are inversely proportional. Figure 1 shows the price-yield relationship of a bond when it is callable and non-callable. The non-convex nature of a callable bond can be explained as follows:
Figure 1
Note: y* yield at which bond becomes callable.
From the definition of the callable bond, we know that a bond becomes callable only when the prevailing market yield is less than the coupon rate on comparable bonds. The price-yield curve of a bond is unaffected till the time it becomes callable. Investors may not be willing to pay the same price for a bond even when the coupon rate on the bond is just lower than the market yield as what would have been its price if it were a callable bond, for, there is a possibility of a further drop in the market yield and the issuer may call the bond. As yields decline, there is an increasing possibility of the issuer calling the bond. Though the exact yield level at which the bond would be called may not be known, the existence of such a level is certain. In Figure 1, for yield levels below y*, the price-yield relationship of a callable bond differs from that of a non-callable bond. For instance, the market yield is such that a bond would be selling for 107. But, if it is a callable bond then it might be called at 105 and hence the investors will not be willing to pay 107. Even if the investors purchase at 107 and if the bond is called, then they get only 105 and hence there is a loss of 2 units per bond. For a range of yields below y*, there is price compression. Here, by price compression we mean that as yields decline price appreciation is limited. This portion of the price-yield relationship of a callable bond below y* is termed negatively convex the reason being-increase in yields by a given number of basis points will result in a greater price decline compared to the price appreciation if yields decline by the same number of basis points.
Residual Income This is used for external reporting purposes. This term refers to the net income which is available for distribution to the firm's common stock holders. In mana
A firm has net working capital of -$800. Long-term debt is $15,400, total assets are $24,800 and fixed assets are $19,100. What is the amount of the total liabilities.
Q. Explain Accept-Reject Criteria? Accept-Reject Criteria:- If actual ARR is elevated than the predetermined rate of return .......................Project would be accep
Given below are the cash flows of a project. Find out the net present value of the project. Cost of capital is 18% and initial investment is Rs. 2,00,000. Year Cash Flows (lakhs)
Brandon Michael Chu of Henry Law & Yang Yi Capital Limited believes that earnings and dividends at Alua Amanova & Shuwen Wang Technologies (AST) will continue to grow at 12% per ye
How is a country’s economic well-being enhanced through free international trade in goods and services? As per to David Ricardo, with free international trade, it is mutually adv
Cash flow statement analysis Cash flow statement is a primary financial statement and shows cash generating ability of the organisation. Cash generated from operations can b
Consistency - ACCOUNTING postulate that stipulates, except as otherwise noted in FINANCIAL STATEMENT, same accounting procedures and policies have been followed from period to peri
annual uasage of stock 100,000units carrying cost per unit of stock RM2 order cost RM250 question there is a constraint arising from the floor space of the
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd