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!
Various bond features largely affect the degree of correlation between the bond's prices and the bond's interest rates. Some of the bond features that affect bond's interest rate risk are - maturity, coupon rate and embedded options.
Maturity Period: The degree of bond price sensitivity to its interest rate changes depends upon its maturity period. Longer the maturity period of the bond, greater would be the price sensitivity to change in the interest rate of the bond, assuming that all other factors to be constant.
Coupon Rate: Assuming that all other factors are constant, the degree of bond price sensitivity to its interest rate changes depends upon its coupon rate. Higher the coupon rate, lower is the degree of sensitivity to changes in interest rates and vice versa. Further, zero coupon bonds tend to have higher price sensitivity to interest rate changes compared to the bonds having a coupon rate.
Embedded Options: The value of the bond with embedded option will depend on how the value of the embedded option changes with the interest rates. For example, let us consider a callable bond. We know that when interest rates decrease, the price of an option-free bond increases. However, in a callable bond, an increase in price is not as much as it is in an option-free bond. Let us try to understand this by separating the price of a callable bond into two parts.
Price of callable bond = Price of option-free bond - Price of embedded call option
The price of embedded call option is deducted because it is of value to issuer; but for an investor it is a disadvantage. Therefore, the price of a callable bond is less when compared to the price of an option-free bond. Now, when interest rates decrease, the call option value increases because it becomes more valuable to the issuer; and when interest rate decreases, both the price of option-free bond and the price of call option increase. This results in a relatively lesser change in the price of a callable bond when compared to the change in the price of option-free bond.
Discuss the option of dividend reinvestment plans
Traditional Approach of financial management Traditional approach to the scope of financial management refers to its subject matter, in academic literature in initial stages o
Q. Representation of generator winding? The notation using subscripts is such that VAB is the potential at point A with respect to point B, IAB is a current with positive flow
Q. Credit Analysis for Formulation of Optimum Credit Policy? Credit Analysis: - Credit Analysis is made to estimate the credit worthiness of the customers before making credi
The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r
Which ratios would a potential long-term bond investor be most interested in? Explain. Potential and Current lenders of long-term funds, such as bondholders and banks, are con
I need a paper on the financial status of the company under armour with ratios using information from yahoo.com finances. & Id like to provide a document with further details
PEST analysis and its derivatives Such a process is required for an organisation to be continually aware of external factors within its general or industry en
Dividend cover Dividend cover = Profit available to ordinary shareholders (PAT) / Annual dividend(no. of times) Or = EPS/Dividend per share Dividend cover shows safety
Assume that you can receive $25,000 per year forever and that your cost of money is 7%. What is this opportunity worth today?
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd