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mid3-review - Finance 432 Investment Analysis and...

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Finance 432 – Investment Analysis and Management Review Notes for Midterm Exam #3 Chapters 9&10 1. Bond Investing 2. Characteristics of bonds Coupon rate and interest payment Maturity date; Call provision; Call premium and call price Face value; Zero coupon bonds; Required rate of return 3. Interest rate risk: price risk vs. reinvestment risk Interest rate price risk vs. interest rate reinvestment risk 4. Bond valuation: concepts and calculations P (intrinsic value); YTM; YTC; CY 5. Term structure theories 6. Principles of bond price behavior 7. Duration: concepts and calculations Macaulay duration, D = = T t t w t 1 * , where 0 ) 1 /( P y CF w t t t + = Relationship between duration and bond price volatility P P = - D y y + + 1 ) 1 ( = - D * y where D * = y D + 1 , is the modified duration 8. Bond immunization: concepts and applications 9. Convertible bonds: concepts and calculations Conversion period; conversion ratio; conversion value; conversion premium; investment value Conversion value = conversion ratio * current market price
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