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Lecture05 Fixed Income Securities

Lecture05 Fixed Income Securities - Fixed Income Securities...

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Fixed Income Securities Tyler R. Henry 1 FINA 4310 Outline Contents 1 Bond Basics 1 1.1 Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2 Interest Rate Risk 7 2.1 Maturity effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Coupon Rate Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 Duration 9 3.1 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.2 Price changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.3 Convexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4 14 1 Bond Basics Bond Terminology Coupon payment Typically semi-annual Coupon rate Annual coupon dollar amount divided by par value Par value (face value) usually $1,000 1
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