Exam2Review

Exam2Review - 3/4/2011 Bond contractual features and how...

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3/4/2011 1 Bond contractual features and how they affect the return investors demand Maturity, covenants, default features Why do bonds from the same firm have different YTM? Characteristics Risk Rate Bond ratings and their purpose Inflation, purchasing power, nominal and real interest rates Definition and Intuition Fisher Effect
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2 Return calculations need to be second nature to you. $ returns % returns (V1+D-V0)/V0 or (P1+D-P0)/Po Understand: Historical averages and standard deviations Arithmetic and Geometric Expected returns and future (or population) variance States of the world Portfolios Intuition and intervals of returns that follow the normal distribution Understand strong, semi-strong, weak Understand what markets react to: Surprise vs. Expected information or news Understand how investors react: Direction of reaction Over and under-reactions What to do to profit from market inefficiencies. Under/Over reactions would violate which form of
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Exam2Review - 3/4/2011 Bond contractual features and how...

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