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!
Price-Yield Relationship of a Callable Bond
The price-yield relationship of a non-callable or a non-puttable bond is convex because price and yield are inversely proportional. Figure 2 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.
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, but the existence of such a level is certain. In Figure 2, 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. Hereby 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 because of the following reason. 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.
Syntax of Accounting Procedure The general accounting practices are: (a) Do not consider any income or gain till the similar is realised in cash; (b) Create or make pr
Explain the term- Trade receivable days (turnover) [Yearend trade receivables/Credit sales (or turnover)] x 365days It is the average length of time taken by customers t
Q. Cost of Equity Share Capital? Cost of Equity Share Capital: - The cost of equity is the utmost rate of return that the company should earn on equity financed position of its
a) Product orientated businesses tend to be produce products and inward looking that they hope will sell in the marketplace. For example, Sony hoped that its $101,500 audio systems
what is amount of cash dividend if investor buys share of 100 at premium of 400.
The calculations for the cash flows Actual amount of cash paid or received during the period needs to be established. This can get quite tricky as there would be accruals
1. The standard approach here is to calculate some conventional ratios. These ratios can afterwards be used along with regression analysis to estimate the default probability.
Explain why accounting profits and cash flows are not the same thing. Stock worth depends on future cash flows, their riskiness and their timing. Profit calculations don't con
Q. Basic objectives of cash management? The basic objectives of cash management are two-fold: 1) To meet the cash disbursement needs (payment schedule); and 2) To minimize f
Q. Calculate Average Annual Return? An investor buys a bond in 1978 maturity in 1980 at Rs.900. It has a maturity value of 10 years and par value of Rs. 1000. It fetches RS.90
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