Lec 9 - AF3316 Investments Shaojun (Shaun) Zhang, Ph.D. ASA...

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Unformatted text preview: AF3316 Investments Shaojun (Shaun) Zhang, Ph.D. ASA School of Accounting and Finance The Hong Kong Polytechnic University LECTURE 9 LECTURE 9 Bond Prices and Bond Prices and Yields Yields 9-2 AF3316 Lecture 9 Why investing in bonds? Cumulative returns from 1926 to 2006 0.000 500.000 1000.000 1500.000 2000.000 2500.000 1 9 2 6 1 9 2 9 1 9 3 2 1 9 3 5 1 9 3 8 1 9 4 1 1 9 4 4 1 9 4 7 1 9 5 1 9 5 3 1 9 5 6 1 9 5 9 1 9 6 2 1 9 6 5 1 9 6 8 1 9 7 1 1 9 7 4 1 9 7 7 1 9 8 1 9 8 3 1 9 8 6 1 9 8 9 1 9 9 2 1 9 9 5 1 9 9 8 2 1 2 4 Year Dollars Equity return in US Dollars Bond return in US Dollars Long-Term T-Bonds T-Bills Inflation 9-3 AF3316 Lecture 9 Why investing in bonds? Cumulative returns from 1926 to 2006 0.000 20.000 40.000 60.000 80.000 100.000 120.000 1 9 2 6 1 9 2 9 1 9 3 2 1 9 3 5 1 9 3 8 1 9 4 1 1 9 4 4 1 9 4 7 1 9 5 1 9 5 3 1 9 5 6 1 9 5 9 1 9 6 2 1 9 6 5 1 9 6 8 1 9 7 1 1 9 7 4 1 9 7 7 1 9 8 1 9 8 3 1 9 8 6 1 9 8 9 1 9 9 2 1 9 9 5 1 9 9 8 2 1 2 4 Year Dollars Bond return in US Dollars Long-Term T-Bonds T-Bills Inflation 9-4 AF3316 Lecture 9 Why investing in bonds? Geom. Arith. Stan. Series Mean% Mean% Dev.% World Stk 9.80 11.32 18.05 US Lg Stk 10.23 12.19 20.14 US Sm Stk 12.43 18.14 36.93 World Bonds 5.80 6.17 9.05 LT Treas. 5.35 5.64 8.06 T-Bills 3.72 3.77 3.11 Inflation 3.04 3.13 4.27 9-5 AF3316 Lecture 9 Why investing in bonds? 9-6 AF3316 Lecture 9-- Bradford Delong, Professor of Economics at the University of California at Berkeley and a former Assistant U.S. Treasury Secretary “Funds invested, and reinvested, in the S&P composite from 1998–2008 have yielded a real return of zero: the dividends earned on the portfolio have been just enough to offset inflation. Not since 1982 has a decade passed at the end of which investors would have been better off had they placed their money in corporate or United States Treasury bonds rather than in a diversified portfolio of stocks.” 9-7 AF3316 Lecture 9 Bond Market (Review Section 2.2) • Treasury Notes and Bonds • Federal Agency Debt • International Bonds • Inflation-Protected Bonds • Municipal Bonds • Corporate Bonds • Mortgages and Mortgage-Backed Securities 9-8 AF3316 Lecture 9 Bond Characteristics • Face or par value • Coupon rate – Zero coupon bond • Compounding and payments – Accrued Interest • Indenture 9-9 AF3316 Lecture 9 Treasury Notes and Bonds • T Note maturities range up to 10 years • T bond maturities range from 10 – 30 years • Bid and ask price – Quoted in points and as a percent of par • Accrued interest – Quoted price does not include interest accrued 9-10 AF3316 Lecture 9 Figure 10.1 Listing of Treasury Issues 9-11 AF3316 Lecture 9 Corporate Bonds • Most bonds are traded over the counter • Registered • Bearer bonds • Call provisions • Convertible provision • Put provision (putable bonds) • Floating rate bonds • Preferred Stock 9-12 AF3316 Lecture 9 Figure 10.2 Investment Grade Bonds 9-13 AF3316 Lecture 9 Bond Market Reporting...
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This note was uploaded on 06/06/2009 for the course AF AF3316 taught by Professor Shaojunzhang during the Spring '09 term at Hong Kong Polytechnic University.

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Lec 9 - AF3316 Investments Shaojun (Shaun) Zhang, Ph.D. ASA...

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