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23 Cards in this Set
- Front
- Back
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15.65B - Current yield for a bond is its
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Annual intrst payment divided by its market price
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15.65B - Yield to call/put is calculated as:
*CF yield is a |
a YTM but with the number of periods until the call/put and the call/put price substituted for the number of periods to maturity and the maturity value
Monthly IRR based on a presumed prepayment rate and the current market price of a mortgage-backed or asset-backed security |
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15.65A - What are the three sources of return to a coupon bond:
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1. Coupon interest payments
2. Reinvestment income on the coupon CF's 3. Capital gain or loss on the principal value |
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15.65B - YTM for a semiannual pay coupon bond is calculated as
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Two times the semiannual discount rate that makes the PV of the bond's promised CF's equal to its market price plus accrued intrst.
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15.65B - For an annual-pay coupon bond the YTM
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The annual discount rate that makes the PV of the bond's promised CF equal to its market price plus accrued intrest
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15.65C - YTM is not the realized yield on an investment unless...
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The reinvestment rate is equal to the YTM
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15.65C - The amount of reinvestment income required to generate the YTM over a bond's life is....
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Is the difference between the purchase price of the bond, compounded at the YTM until maturity, and the sum of the bond's intrest & principal CF's.
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15.65C - The reinvestment risk is higher when the
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coupon rate is greater (maturity held constant) and when the bond has longer maturity (coupon rate held constant)
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15.65E - The theoretical treasury spot rate curve is derived by calculating the ...
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Spot rate for each sucessive period N based on the spot rate for period N - 1 and the market price of a bond with N coupon payments
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15.65E - To compute the value of a bond using spot rates:
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Discount each separate CF using the spot rate corresponding to the # of periods until the CF is to be received
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15.65F - 3 Commonly Used Yield Spread measures:
1. Nominal Spread 2. Zero-Volatility Spread 3. Option-adjusted spread |
1. Nominal Spread: bond YTM - Treasury YTM
2. Z-spread or static spread: The equal amount of additional yield that must be added to each Treasury spot rate to get spot rates that will produce a PV for a bond equal to its market price. 3. Option-Adjusted Spread(OAS): spread to the spot yield curve after adjusting for the effects of embedded options. OAS reflects the spread for credit risk and liquidity risk primarily. |
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15.65F - There is no difference between the nominal and Z-spread when....
The steeper the spot yield curve/earlier bond principal is paid.. |
When the yield curve is flat.
The steeper the spot yield curve and the earilier bond principal is paid (amortizing securities), the greater the difference in the two spread measures. |
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15.65G - Forward rates are
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current lending/borrowing rates for short-term loans to be made in future periods.
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15.65H - A spot rate for a maturity of N periods is the geometric mean of
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forward rates over the N periods. The same relation can be used to solve for a forward rate given spot rates for two different periods.
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15.65H - To value a bond using forward rates...
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Discount the CF's at times 1 through N by the product of one plus each forward rate for periods 1 to N, and sum them.
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17.67A - A derivative has a value that is
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"derived" from the value of another asset or interest rate
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17.67A - Exchange-trade derivatives, notably futures and some options are traded in
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Centrailized location and are standardized, regulated, and default risk free
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17.67A - Forwards/Swaps are
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Customized contracts created by dealers and financial institutions. There is very limited trading of these contracts in secondary markets and default (counterparty) risk must be considered
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17.67B - A forward commitment is a...
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Binding promise to buy or sell an asset or make a payment in the future.
Forward contracts, futures contracts, and swaps are all forward commitments. |
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17.67B - A contingent claim is an
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Asset that has value only if some future event takes place. Options are contingent claims.
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17.67B - Forward contracts obligate
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one party to buy and another to sell a specific asset at a predetemined price at a specific time in the future
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17.67B - Swaps contracts are equivalent to...
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Are equivalent to a series of forward contracts on intst rates, currencies, equity returns
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17.67B - Futures contracts are...
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Much like forward contracts but are exchanged-traded, quite liquid, and require daily settlement on any gains or losses.
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