Lecture 1 with solutions.pdf

Lecture 1 with solutions.pdf - FINE 451 Fixed Income...

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FINE 451 Fixed Income Analysis/Markets Marco Di Sabato Desautels Faculty of Management McGill University
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Syllabus key points Contact information: [email protected] Please include course number in email subject line Course material Based on class notes
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Syllabus key points (2) Grading scheme •Assignments = 30% 3 assignments worth 10% each •Midterm exam = 30% •Final exam = 40% Course objective Learn key features of bond markets Learn key bond and bond derivative valuation tools
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Course topics Bond pricing, yields, and returns Bond arbitrage Forward rates and bond futures Term structure of interest rates Duration, Convexity, and bond hedging Floating rate bonds Interest rate swaps and swap spreads
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Course topics (2) Inflation linked bonds Corporate bonds and credit risk Credit Default Swaps Bonds with embedded options Caps and Floors Bond derivatives Convertible Bonds
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Assignments – General Rules Groups of 4 to 5 students 1 bullet = 1 thought Use point form clearly identify references to material taken from research use charts, graphs and diagrams – a picture is worth 1000 words 20 slides – ensure have at least 1 slide for conclusions • 21 st slide should contain references to all research material used in developing the assignment.
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Assignment – Don’t Do not hand in a document that is a cut and paste of reference material Do not use paragraphs as bullet points. Paragraphs disqualifies marks for clarity Use reference material as a building block Follow up points referenced from research work with your own ideas that build on these. This will earn higher marks.
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Assignment - Grading Assignments will be marked on the basis of: 1. Relevance of the material presented 2. Clarity of ideas conveyed in the presentation 3. Importance of conclusions 4. Demonstrating knowledge of the concepts discussed in class I will review top 3 presentations for assignment of full marks
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Assignment - Example Discuss the impact of monetary policy since the Great Recessions. Identify what monetary policy was used and what it was intended to do. Identify and discuss whether these objectives were achieved and explain their achievement or failure.
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Assignment - Example Monetary Policy since the Great Recession has been to maintain low interest rates Dovishness of Monetary Policy has gone beyond overnight interest rates to impacting the entire yield curve through Quantitative Easing Intention: Transmission Chanel Theory where low interest rates encourage investors to channel investment into higher risk areas of the economy
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Assignment - Example Investor Reaction: – global search for yield by almost all investors – borrowing in huge quantities as an alternative to riskier projects that would have been classified as capex spending or real fixed investment (see graphs on next slides) • Result: – world is more dependent than ever on central bank interventions – economic growth is still persistently weak
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Weak US Real Fixed
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