Debt: valuation Flashcards
credit ratings factors
> default
payment priority
projected recovery
financial stability
gross redemption yield
flat yield + profit yield
flat yield (return from coupons)
gross annual coupon/ market price *100%
profit yield
(profit(or loss)/ n)/ market price
bond trading above par and below par
GRY < Flat yield < coupon
GRY > Flat yield > coupon
net redemption yield
income tax on coupon
not tax payable on gain
net coupon
gross coupon*(1-t)
grossed up net redemption yield
compares assets with different tax treatments
NRY / (1-t)
Interest rate effect on bonds can lead to
shift (increase or decrease in yields) or twist (change of shape of curve)
ex-coupon date (cannot receive next coupon payment)
7 business days
dirty price less than clean price
clean price = dirty price on coupon payment date
dirty price =
clean price on coupon payment date
duration
sum(PV of cf * time to CF)/sum(PV of cf)
modified duration (change in price for a 1% change in yield)
> assumes linear
> over estimates price falls
> under estimates price rises
D / (1+r)
changeinprice = -MD * change in r * bonds current price
upward sloping yield curve
forward rate > spot rate > GRY (weighted avg of Forward rate and spot rate)
downward yield curve
forward rate < spot rate < GRY