Financial Markets (Bilingual Teaching)
3) Commercial paper maturities range up to 270 days. 4) Estimating commercial paper yields: same as T-Bill 4. Negotiable certificates of deposits 1) Issued by large commercial banks;
2) the banks pay interest and principal to the depositor only at
the end of the fixed term of the CD;
3) CDs issued in denominations greater than $100,000 are
usually negotiable. 5. Federal funds
1) Funds in the bank’s reserve account are called federal
funds.
2) Funds deposited to regional Federal Reserve Banks by
commercial banks, including funds in excess of reserve requirements. 6. Repurchase Agreements
1) Sell a security with the agreement to repurchase it at a
specified date and price, also called ―repos‖ or ―RPs‖ 2) Borrower defaults, lender has security SP?PP365*3) Repo Rate = PPn7. Bankers Acceptance
1) Exporters send goods to a foreign destination and want
payment assurance before sending
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Financial Markets (Bilingual Teaching)
2) Bank stamps a time draft(远期汇票) from the importer
ACCEPTED and obligates the bank to make good on the payment at a specific time
3) Exporter can hold until the date or sell before maturity; If
sold to get the cash before maturity, price received is a discount from draft’s total
4) Return is based on calculations for other discount securities,
Similar to the commercial paper example 8. Major Participants in Money Market 1) Short-term investing for income and liquidity 2) Short-term financing for short and permanent needs 9. Yield for an international investment (Calculation) Effective yield for international securities has two components: 1) The yield earned on the investment denominated in the
currency of the investment
2) The exchange rate effect Performance of international
securities
PPf% ?S measures the expected percent change in the currency
Yf?SPf?PPfYe?(1?Yf)?(1?%?S)?1第 17 页 共 42 页
Financial Markets (Bilingual Teaching)
Chapter5 Bond Markets
1. Bonds
1) represent long-term debt securities 2) Contractual
3) Promise to pay future cash flows to investors
? Interest (or coupon) payments periodically usually semiannually
? Par or face value (principal) at maturity 2. Bond Interest Rates
1) The issuer’s cost of financing with bonds is the coupon rate 2) Determined by current market rates and risk 3) Usually fixed throughout term 4) Determines periodic interest payments 3. Bond Yield to Maturity
1) The yield to maturity (YTM) is the yield that equates the
future coupon and principal payments with the bond price 2) The YTM is the investor’s expected rate of return if the
bond is held to maturity 3) Calculation 4. U. S. Treasury Bonds
1) Issued by the U.S. Treasury to finance federal government
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Financial Markets (Bilingual Teaching)
expenditures
2) Maturity: Notes, < 10 Years; Bonds, > 10 to 30 Years 3) Benchmark Debt Security for Any Maturity 5. Federal Agency Bonds
Three government owned or sponsored agencies involved 1) Government National Mortgage Association（Ginnie Mae） 2) Federal Home Loan Mortgage Association（Freddie Mae） 3) Federal National Mortgage Association（Fannie Mae） 6. Municipal Bonds
1) State and local government obligations 2) Revenue bonds vs. general obligation Bonds
3) Investor interest income exempt from federal income tax 7. Corporate Bonds
1) When corporations want to borrow for long-term periods
they issue corporate bonds
2) Corporate Bond Terminology: Indenture; Trustee; Sinking
Fund Provision; Protective Covenants; Call provisions; Bond collateral; Low-coupon and zero-coupon bonds; Variable-rate bonds; Convertible bonds
3) Junk Bonds: Junk bonds are also called high-yield bonds or
noninvestment rated bonds
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Financial Markets (Bilingual Teaching)
Chapter6 Bond Valuation and Risk
1. Bond Valuation Process
1) Bonds are debt obligations with long-term maturities issued
by governments or corporations to obtain long-term funds 2) Bond price (value) = present value of cash flows to be
generated by the bond
PV?CCC?Par?????C*PVIFA(i,n)?Par*PVIF(i,n)12n(1?i)(1?i)(1?i) Where,
C = Coupon per period (PMT) Par = Face or maturity value (FV) i = Discount rate (i)
n = Compounding periods to maturity
PVIFA: Present Value Interest Factor of Annuity 3) Impact of the Discount Rate on Bond Valuation:
? Discount rate = market-determined yield that could be earned on alternative investments of similar risk and maturity
? Cash flows are contractual and remain the same each period
? Bond prices vary inversely with changes in market interest rates
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