TAILIEUCHUNG - Lecture Investments (Special Indian Edition): Chapter 15 - Bodie, Kane, Marcus

The topics discussed in this chapter are: Definition of efficient markets; different forms of market efficiency; evidence regarding market efficiency; implications for fundamental analysis, technical analysis, and portfolio management; market pricing anomalies; behavioral finance. | Chapter 16 Managing Bond Portfolios Active strategy Trade on interest rate predictions Trade on market inefficiencies Passive strategy Control risk Balance risk and return Basic Strategies Inverse relationship between price and yield. An increase in a bond’s yield to maturity results in a smaller price decline than the gain associated with a decrease in yield. Long-term bonds tend to be more price sensitive than short-term bonds. Bond Pricing Relationships As maturity increases, price sensitivity increases at a decreasing rate. Price sensitivity is inversely related to a bond’s coupon rate. Price sensitivity is inversely related to the yield to maturity at which the bond is selling. Bond Pricing Relationships (cont’d) A measure of the effective maturity of a bond. The weighted average of the times until each payment is received, with the weights proportional to the present value of the payment. Duration is shorter than maturity for all bonds except zero coupon bonds. Duration is equal to maturity for zero coupon bonds. Duration Duration: Calculation 8% Bond Time years Payment PV of CF (10%) Weight C1 X C4 .5 40 .0395 .0197 1 40 .0376 .0376 40 1040 sum .0358 . 8871 .0537 Duration Calculation: Spreadsheet Price change is proportional to duration and not to maturity. P/P = -D x [ (1+y) / (1+y) D* = modified duration D* = D / (1+y) P/P = - D* x y Duration/Price Relationship Rules for Duration Rule 1 The duration of a zero-coupon bond equals its time to maturity. Rule 2 Holding maturity constant, a bond’s duration is higher when the coupon rate is lower. Rule 3 Holding the coupon rate constant, a bond’s duration generally increases with its time to maturity. Rule 4 Holding other factors constant, the duration of a coupon bond is higher when the bond’s yield to maturity is lower. Rules for Duration (cont’d) Rules 5 The duration of a level perpetuity is equal to: Rule 6 The duration of a level annuity is equal to: Rules for Duration (cont’d) Rule 7 The duration for a corporate bond is equal to: Yield Price Duration Pricing Error from convexity Duration and Convexity Correction for Convexity Correction for Convexity: Bond-Index Funds Immunization of interest rate risk: Net worth immunization Duration of assets = Duration of liabilities Target date immunization Holding Period matches Duration Cash flow matching and dedication Passive Management Substitution swap Inter-market swap Rate anticipation swap Pure yield pickup Tax swap Active Management: Swapping Strategies Maturity Yield to Maturity % 3 mon 6 mon 9 mon .75 Yield Curve Ride Contingent Immunization A combination of active and passive management. The strategy involves active management with a floor rate of return. As long as the rate earned exceeds the floor, the portfolio is actively managed. Once the floor rate or trigger rate is reached, the portfolio is immunized. Interest Rate Swaps Contract between two parties to exchange a series of cash flows One party pays a fixed rate and receives a variable rate One party pays a variable rate and receives a fixed rate Payments based on notional principal Swap Example Figure 16-11 Swap Dealer Company B Company A LIBOR LIBOR LIBOR 7%

• Quỹ đầu tư
• Lecture Investments
• Portfolio theory
• Equilibrium in capital markets
• Investment environment
• Financial instruments
• Market efficiency
• Accounting principles
• Lecture Accounting principles
• Financial reporting
• Classifying investments
• Accounting for trading investments
• Strategic investments
• International operations
• Noninfluential investments
• Motivation for investments
• Fundamental accounting principles
• Lecture Fundamental accounting principles
• Financial accounting
• Lecture Financial accounting
• Accounting system
• Interpreting investments
• Passive investments
• Equity securities
• Investments in stock
• Survey of accounting
• Lecture Survey of accounting
• Capital investments
• Planning for capital investments
• Reinvestment assumption
• Internal rate of return
• Intermediate accounting
• Lecture Intermediate accounting
• Investments in debt securities
• Investments in equity securities
• Available for sale securities
• Debt investments
• Stock investments
• Financial statements
• Nguyên lý kế toán
• Managerial Accounting
• Lecture Managerial Accounting
• Kế toán quản trị
• Capital budgeting evaluation
• Accounting for cash
• Accounting cycle
• Business decision
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• Analyzing investments
• Financial information
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• Intercorporate equity investments
• Minority passive investments
• Acquisition method
• Investment analysis
• Principles of portfolio
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• Market organization
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• Company analysis
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