Fin 448: Fixed-Income Securities
Bond Funds
Robert Ready
1
Bond Mutual Fund Assets Under
Management (AUM)
2
Bond Mutual Fund Assets Under
Management (AUM)
3
Bond Fund Growth Reflects Market Growth
4
Retail Investors in Crisis
5
Retail Investors in Crisis
Fin 448: Fixed-Income Securities
Forecasting the Fed: FOMC and Equities
Robert Ready
1
Forward Rate
In the Short Term, Fed Funds futures (exchange traded FRA
agreements) provide a market forecast of interest rates
2
Most Recent Fed Fund Rate Rise
3
Bernan
Fin 448: Fixed-Income Securities
Session 1: Introduction
Robert Ready
1
U.S. Capital Markets
2
U.S. Capital Markets
3
Debt market participants and objectives
Issuers
Homeowners, governments, and corporations
To obtain financing
Investors
Banks, institu
Fin 448: Fixed-Income Securities
LIBOR Fixing
Robert Ready
1
Timeline
2008: Wall street Journal Reports that banks were
deliberately submitting false bids to try to impact LIBOR
2009-2010: Various studies at first suggest this is
implausible, then find ev
Fin 448: Fixed-Income Securities
FHA and Subprime since the Crisis
Robert Ready
1
Current Topic: Subprime since the Crisis
Private companies exited the subprime market
The slack is being picked up the government (Through
the FHA)
Guarantee credit risk
Fin 448: Fixed-Income Securities
The Goals of Monetary Policy
Robert Ready
1
The Dual Mandate
2
The Dual Mandate
3
Why is inflation bad?
Shoe Leather Costs, Menu Costs
Why might it be good? What if a company wants the flexibility to
reduce wages?
4
How Do
Fin 448: Fixed-Income Securities
Negative Interest Rates
Robert Ready
1
Negative Bond Yields
2
Why do we think yields should be positive?
Time Value of Money
From Investopedia:
The time value of money (TVM) is the idea that money available at the present
Fin 448: Fixed-Income Securities
Utility Theory vs. Prospect Theory
Robert Ready
1
Where do risk-neutral probabilities come
from?
Generally we think about agents evaluating payoffs
They do not evaluate expected dollar payoffs (wealth)
They evaluate exp
Fin 448: Fixed-Income Securities
Century Bonds
Robert Ready
1
Century Bonds
2
Century Bond Issuers
3
Century Bond Buyers
Don't be a crazy bond buyer
There are a few institutional investors, such as pension funds and insurance
companies, for which committi
Fin 448: Fixed-Income Securities
Bond Returns
Robert Ready
1
Long-Term Bond Returns
As weve already seen in this class, the term structure is largely
upward sloping.
0.05
10yr - 1yr Yield Spread (Slope)
10yr - 1yr Yield Spread (Slope)
0.04
0.03
0.02
0.01
Fin 448: Swap FRA Practice
Name:
January 30, 2017
1. Leave an empty seat between you and your neighbors if possible
2. Do not open the exam until everyone gets a copy and starts at the same time
3. Write your answers in the space provided. If extra space
Fin 448: Fixed-Income Securities
Homework 1
Due Tuesday, January 17th
Submit Electronically or in Hard Copy - One Submission per Group
Electronic solutions should be in easily printable form (PDF or Document form)
Electronic Submissions should be made to
Fin 448: Fixed-Income Securities
Homework 4
Not Assigned
Robert Ready
1
Forward Rate Agreement (FRA)
Suppose a 6 month zero coupon bond is trading at yield of 5%. The 1-year zero
coupon bond is trading at a yield of 5.2%. Assume all yields are quoted semi
Fin 448: Fixed-Income Securities
Homework 7
Morning Section - Assigned: May 15 Due: May 22
Evening Section - Assigned: May 15 Due: May 22
Robert Ready
1
Binomial CDS
Consider a one period credit default swap in the binomial model. The buyer pays
100s at t
Fin 448: Fixed-Income Securities
Final - 2017
Name:
120 Minutes
March 20, 2017
1. Leave an empty seat between you and your neighbors
2. Do not open the exam until everyone gets a copy and starts at the
same time
3. Write your answers in the space provided
Fin 448: Fixed-Income Securities
Midterm - 2015
Name:
90 Minutes
February 3, 2015
1. Leave an empty seat between you and your neighbors if possible
2. Do not open the exam until everyone gets a copy and starts at the
same time
3. Write your answers in the
Fin 448: Fixed-Income Securities
Homework 3
Due January 31
Robert Ready
Submission: Please bring a hard copy to class on the due date. Alternatively, you
may submit electronically at [email protected] If you submit electronically please ma
Fin 448: Fixed-Income Securities
Homework 5
Due Thursday February 16th
Robert Ready
Submission: Please bring a hard copy to class on the due date. Alternatively, you
may submit electronically at [email protected] If you submit electronical
Fin 448: Fixed-Income Securities
Homework 6 (Writeup Solutions)
(Due Thursday March 2nd)
Robert Ready
March 5, 2017
1
Part 1
1.1
Questions
1. Look at the term structure implied by the model in Scenario 1. Why is the MPTS trading below
face value? How coul
Fin 448: Fixed-Income Securities
Homework 2
Due January 24
Robert Ready
Submission: Please bring a hard copy to class on the due date. Alternatively, you
may submit electronically at [email protected] If you submit electronically please ma
Fin 206: Investments, Spring 2017
Prof. Giulio Trigilia
PROBLEM SET 1 SOLUTIONS
Question 1: (5 points total) An investment project produces cash flows of
$432,000 in year one, $1,477,000 in year two, and $330,000 in year three. It
does not generate any ca
Fin 206: Investments, Spring 2017
Prof. Giulio Trigilia
PROBLEM SET 2 SOLUTIONS
Question 1: (10 points total see the suggested breakdown below)
You manage a risky portfolio with expected rate of return of 18% and
standard deviation of 32%. The T-bill rate
Name: Huijun Yu
1. What factors should Ameritrade management consider when evaluating the proposed
advertising program and technology upgrades? Why?
Ameritrade management should consider the Net Present Value and the Internal Rate of
Return of the investm
FIN402 Questions for Lab Session 1
1. In the article posted about the Powerball jackpot of $1.5 billion, the following details are given:
the cash prize is split into 30 equal payments over the next 29 years (time 0 through time 29)
the present value is $
FIN402 Questions for Lab Session 2
1. A new lottery is created that pays $1000 weekly in perpetuity beginning in time 0. Each week after
time 0, the payment will go up by a weekly increase of .1%. The annual discount rate is 4%
(a ) Set up the problem on
Primary education enrollment, net %* .
85.5 .112 11.02 Secondary education
enrollment, gross %* . 82.2 .86 11.03
Quality of the educational system .
4.0 .51 11.04 Local availability specialized
research & training . 5.5 .11 11.05 Extent of
staff training