Fixed Income Analysis Workbook

Barbara S. Petitt

• Verlag: Wiley
• Jahr: 2019
• ISBN:
  9781119628187
• Auflage: 4
• Thema: Negocios y empresa
• Thema: Inversiones y valores

THE THOROUGHLY REVISED AND UPDATED FOURTH EDITION OF THE COMPANION WORKBOOK TO FIXED INCOME ANALYSIS

Now in its fourth edition, the Fixed Income Analysis Workbook offers a range of practical information and exercises that will enhance your understanding of the tools, strategies, and techniques associated with fixed-income portfolio management. Written by a team of knowledgeable contributors, this hands-on resource helps busy professionals and those new to the discipline apply the concepts and methodologies that are essential for mastery.

The Workbook is an accessible guide for understanding the metrics, methods, and mechanics as applied in the competitive world of fixed-income analysis. It also provides a stress-free way to practice the tools and techniques described in the companion text. The Fixed Income Analysis Workbook includes information and exercises to help you:

• Work real-world problems associated with fixed-income risk and return
• Review the fundamentals of asset-backed securities
• Comprehend the principles of credit analysis
• Understand the arbitrage-free valuation framework
• Practice important methods and techniques before applying them in actual situations

The fourth edition provides updated coverage of fixed income portfolio management including detailed applications of liability-driven and index-based strategies, exposure to the major types of yield curve strategies, and practical approaches to implementing active credit strategies.

For anyone who wants a more solid understanding of fixed-income portfolio management, the Fixed Income Analysis Workbook is a comprehensive and practical resource.

PART I
LEARNING OBJECTIVES,
SUMMARY OVERVIEW,
AND PROBLEMS

CHAPTER 1
Fixed-income Securities: Defining Elements

Learning Outcomes

After completing this chapter, you will be able to do the following:

• describe basic features of a fixed-income security;
• describe content of a bond indenture;
• compare affirmative and negative covenants and identify examples of each;
• describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities;
• describe how cash flows of fixed-income securities are structured;
• describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender.

Summary Overview

This chapter provides an introduction to the salient features of fixed-income securities while noting how these features vary among different types of securities. Important points include the following:

• The three important elements that an investor needs to know when investing in a fixed-income security are: (1) the bond’s features, which determine its scheduled cash flows and thus the bondholder’s expected and actual return; (2) the legal, regulatory, and tax considerations that apply to the contractual agreement between the issuer and the bondholders; and (3) the contingency provisions that may affect the bond’s scheduled cash flows.
• The basic features of a bond include the issuer, maturity, par value (or principal), coupon rate and frequency, and currency denomination.
• Issuers of bonds include supranational organizations, sovereign governments, non-sovereign governments, quasi-government entities, and corporate issuers.
• Bondholders are exposed to credit risk and may use bond credit ratings to assess the credit quality of a bond.
• A bond’s principal is the amount the issuer agrees to pay the bondholder when the bond matures.
• The coupon rate is the interest rate that the issuer agrees to pay to the bondholder each year. The coupon rate can be a fixed rate or a floating rate. Bonds may offer annual, semi-annual, quarterly, or monthly coupon payments depending on the type of bond and where the bond is issued.
• Bonds can be issued in any currency. Bonds such as dual-currency bonds and currency option bonds are connected to two currencies.
• The yield to maturity is the discount rate that equates the present value of the bond’s future cash flows until maturity to its price. Yield to maturity can be considered an estimate of the market’s expectation for the bond’s return.
• A plain vanilla bond has a known cash flow pattern. It has a fixed maturity date and pays a fixed rate of interest over the bond’s life.
• The bond indenture or trust deed is the legal contract that describes the form of the bond, the issuer’s obligations, and the investor’s rights. The indenture is usually held by a financial instituti...