Fixed Income Valuation

Question 1

BEY - Bond Equivalent Yield formula
(OAY) - Option - adjusted yield?
True yield?
street Yield?
YTM?
Simple Yield?
Yield to worst?

Answer 1

1.Add on yield, 365 basis { BEY = HPR x 365
—————-
Days (Holding }

2. Yield on a Option-free bond
3. Adjusted for payments (Weeknds, holidays)
4. 365 basis, street > true
5. Single rate used to discount all of the future CFs and calculate de price
6. Anuual payments + amortization of Discount (Or - amortization of a premium)
7. Lowest of Yield-to-call and yield-to-maturity

Question 2

What is and when Matrix (Matriz) prices are used ?
What it estimate?

Answer 2

Matrix prices is the estimate of Iliquid bond based on YTM of similar liquid bonds.

Used when bonds are iliquid

Extra yield over Govs Bonds

Question 3

Clean value =
Full price is =

Answer 3

Value wihtout accrued interest

Full p = Flat + Accr. Interest

Question 4

3 Curves (Fwd, par bond and zero cupon bond)

Answer 4

1.Foward yield curve
Future short-term rates

2.Par bond yield curve
Show YTM (rate) at which bond (Dif. maturities) would trade at par value

3.Zero cupon yield(Treasury spot rate)
Appropriate rates for discounting single cash flows.
Can be different times in the future.

Question 5

Test

Z spread (Zero coupon spread, Zero Vol Spread) is…
Relation with OAS n ORP (Option risk premium)

G-Spread =?

And Option-Adjusted spread

G-spread =

I-Spread (Interpolate spread) is a yield spread related to?

Answer 5

1. Z-Spread
   Interest rate added to each zero cupon bond spot rate .That will make cash flows PV = Market Value, in risky bonds

PV = PMT1 + PMT2 + PMT3 + FV
———— ——- —————- ——> Trial and error.
[(1+r)+ZS] [(1+r)+ZS]^2 [(1+r)+ZS]^3

Z-spread = OAS + ORP (Option risk premium)

2. Option-Adjusted Spread
3. G Spread = YTM Bond - YTM Treasury

OAS = (YRisky Bond - Ygovernment) - Option
With

4. Swap rates

Question 6

When Yield = Cupon, what is the par value?

Answer 6

equal to the issuing (normally 1000)

Question 7

Current Yield (C) Forumula
Relations bout price/Yield

Answer 7

Current Price

Yield = Cupon –> par value
Yield > Cupon –> discount
Yield < Cupon –> Premium

Question 8

Nominal spread is

Answer 8

Spread Add to YTM risk free bond of similar maturity

YTM Rf + Nominal Spread = YTM Risky bond

Question 9

What means : a bond is trading for 89.14

Answer 9

The bond is trading of 89.14% of the princpal value

Question 10

G - spread formula

Answer 10

YTM bond - YTMtreasury

Question 11

Any cupon bond can be views of a sum of…?

Answer 11

Sum of Collection of zero cupon bonds, Discounted by a proper discount rate

Question 12

What is the relation about Spot Rates and YTM?

Answer 12

NONE!

Spot rates are used to calculate No-Arbitrage rates

YTM -> IRR of all CFs = Price

Question 13

No- Arbitrage Value is

Answer 13

The value calculated using spot rates

Question 14

If the bond is convertible, at what spread should trade? (Higher, lower, etc..)

Answer 14

At a lower spread. Benefit, so the spread (Taxa sobre o título option free) need to be lower

Question 15

Calculation method of
1. corporate bonds
2. governament (Lembrar do br)

Answer 15

Corporate - 30/360

Governament - Actual/Actual

Question 16

1.Hard-Bullet Covered bond

2.Soft-Bullet Covered Bond

3.Conditional pass through

Answer 16

1. Default if the company misses one payment

2.May postpone the originally schedule

3. Converts in maturity if it has any payments due

Question 17

IS A BOND CONVERTIBLE GOOD FOR BONDHOLDERS?

Answer 17

Yes, Therefore trades with discount over other similar bonds