Chapter_18_-_Bonds_Analysis_and_Strategy

Chapter_18_-_Bonds_Analysis_and_Strategy - Bonds: Analysis...

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Unformatted text preview: Bonds: Analysis nd Strategy and Strategy Chapter 18 Charles P. Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D. Koppenhaver, Iowa State University 18-1 Why Buy Bonds? ttractive to investors seeking steady Attractive to investors seeking steady income and aggressive investors eeking capital gains seeking capital gains Promised yield to maturity is known at e time of purchase the time of purchase Can eliminate risk that a rise in rates ecreases bond price by holding to decreases bond price by holding to maturity 18-2 The Case Against Buying Bonds ont hold bonds unless investing Don t hold bonds unless investing strictly for income apital appreciation negative 1926- 6 Capital appreciation negative 1926 96 Alternative: a combination of cash vestments and stocks investments and stocks Investors should consider whether ey could build better portfolios that they could build better portfolios that do not include bonds 18-3 Buying Foreign Bonds hy? Why? Foreign bonds may offer higher returns at a point in time than alternative domestic bonds Diversification Can be costly and time-consuming Illiquid markets Transaction costs and exchange rate risk 18-4 Understanding the Bond Market enefits from a weak economy Benefits from a weak economy Interest rates decline and bond prices increase Important relationship is between bond yields and inflation rates y Investors react to expectations of future inflation rather than current actual inflation 18-5 The Term Structure of Interest...
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter_18_-_Bonds_Analysis_and_Strategy - Bonds: Analysis...

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