投资學Outcome1.pptVIP

Outcome 1Bond Markets Apply the principles and theories relating to investment in bond markets. Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand how to calculate flat yield Know how Bond are traded in Bond Markets Bonds A bond is a tradeable loan Issuer promises to: repay the loan at a future date (on maturity) pay interest at a defined rate (usually fixed) Issuer might be the British government bonds are called gilt edged securities Issuer might be a company Bond Definitions Bond Par value (face value) Coupon rate Coupon payment Maturity date Example 8% Treasury Stock 2014 What is the coupon rate? When is the redemption date? What is the par value? How much you will receive every six months? Risks Interest Rate Risk (inverse effect) Inflation Risk (inverse effect) Credit and Default Risk (Government and Company) Liquidity and Marketability Risk Fiscal Risk Currency Risk Government Bonds Government income from taxation Government expenditure Difference is called: Why do Government issue Bonds? Raise funds to finance government expenditure (building roads, education, health care, etc..) Cost is cheap (why?) Always issue new bonds to repay older bonds Who holds government bonds? Institutional investors (pension funds and insurance companies, etc..) Private investors Risk of Government Bonds Very low Unlikely to default Gilts (UK Government Bond) Interest (coupon) gross annual interest on the nominal value (￡100) paid semi annually Repayment (redemption) Classification by “age” Short Less than 5 years Medium 5-15 years Long More than 15 years GILTS Special types of GILTS Index Linked GILTS (CPI or RPI) Convertible GILTS (option to convert the GILTS into a longer-dated security) Strips (conventional GILTS that can be stripped into separate parts) Quiz 1. The stated interest payment, in dollars, made on a bond e