unit 13

Question 1

bond pricing

Answer 1

percentage of par

corporate/muni=1/8 =1.25
gov= 1/32 where .01= .3125

Question 2

current yield

Answer 2

annual interest/ current market price

Question 3

parity shortcut

Answer 3

see what percentage the parity price is in comparison to conversion

multiply par by that

Question 4

convexity

Answer 4

more sophisticated measurement of sensitivity to interest rate changes

Question 5

discounted cash flow

Answer 5

commonly used to value debt securites

take income payments scheduled to be recieved over a given future period and adjust that for time value of money

discount these based on the current interest rate

take future principal repayment - use discount rate to compute present value

higher the cash flow, higher value of bond

Question 6

cash flow on mortgage-backed securities use

Answer 6

average maturities

Question 7

dividend discount model

Answer 7

when we use with equities

discounting is of the dividends

Question 8

jumbo cd minimum

Answer 8

100k

not issued at discount

Question 9

LIBOR

Answer 9

bank term short term lending rate in londo

Question 10

the only time when zero coupon is least price sensitive to changes in interest rates

Answer 10

when its duration is super lower(like one year)

Question 11

how to determine investors cost excluding commissions

Answer 11

first, recognize if it is 1/32(.3125) or 1/8(.125)

then isolate whole number

take decimal and divide by 32 or 8

that number gets added to the whole number

Question 12

A popular tool used by analysts is discounted cash flow (DCF). Most use this tool to evaluate

Answer 12

the present value of future cash flows to determine an appropriate current value.