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15 Cards in this Set
- Front
- Back
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what is a Yield Curve Risk ?
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araise the possibility of chnage in the yield curve shape . Duration is a useful measure of analysis of chnage in the Bond price per chnage in the interest rate (paralel change in the yield curve). change in the yield curve means that yield change by different amount in bonds with different maturities.
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what does a the chnage in Yield Curve shape Shows ?
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this shows the relation between bond yields and maturities.
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ebended Option effect on the sensitivity of bond value to the interest rate change.
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when bond has a embeded option price of bond is less senstive as compared to option free bond. Draw a graphic and consider.
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Call Option (bond embeded option) effect on the senstivity of the bond.
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the call features limits the upside price movement of the bond when the yield decline. Issuer can call the bond and the price would not raise above a cntain limit. which makes it less senstive compared to one option-free bond.
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Put Option (bond embeded option) effect on the senstivity of the bond.
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The Put features limits the downside price movement of the bond when the yield raises. Bond Holder can execute the Put option to limit the downside price of the bond. which makes it less senstive compared to one option-free bond.
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Bond Characteristic --> interest Rate Risk --> Duration effect?
Maturity UP Coupon UP Add a Call Add a Put |
Picture from Iphone.
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Logically how could be the value of a callable bond be calculated ?
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Callable Bond Value = Value of a option free Bond - value of a embaded call option.
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is the Floating Rate Bond less or more senstive and why ?
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its less senstive, because at the cuopon payment, a compensated premimum on top of a referene rate, will cause the bond price to be sell at Par as campared to a fixed coupon bond. this makes a floater less sensitive with repect to the interest rate risk,
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what is a yield curve , what shape it can have and why ?
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a curve between yield and Maturity is known yield curve, it can have any shape, upward sloping, downward sloping, flat or some combination of these.
This is because yield chnages as the maturity chnages. |
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how is the duration of the portfolio is calculated, and what condition to this estimation is applicable ?
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It can be calculated by total of individual bond duration in portfolio as per market weight average. this is condition to yield chnage in each bond is the same absolute percent amount. Parallel shift of the yield Curve. then Portfolio duration could be an approximation of price sensitivity.
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What is a Yield Curve Risk ?
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Risk of decrease in the value of the portfolio due to change in the shape of the yield curve. (non-paralle shift in the yield curve - Picture from Iphone)
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what are the risk associated with Call Optionen or prepayment option embeded bonds ?
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consider ?
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what is a reinvestment risk ?
which bonds have more reinvestment risk (list 4) |
a risk when coupon is paid and due to decrease in interest rate it has to be invested with low interest rate. then expected.
these have more reinvestment risk : 1. Higher Coupons. 2. It has a clall feature. 3. it is a amortising security. 4. it has a prepayment option. |
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what is credit spread, credit spread risk, downgrade risk ?
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consider ?
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what is a bid-ask-spread ? what does it indicates ?
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difference between buy and sell price, it indicates the liquidity of the market for a security.
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