Bonds

PROF. NADEEM MERCHANT

Presented By
Name Roll NO.
Adil Shaikh 20
Afrin chaudhri 25
Shahrukh kinnariwala 29
Masihuddin khan 30
Amrin patel 31
Hussain shaikh 35
Meaning of Bonds
A bond is a contract that requires the borrower to pay the interest income to the lender. It
resembles the promissory note issued by the government and the corporate. The par
value of the bond indicates the face value of the bond i.e., the value stated on the bond
paper. Generally, the face values of the bonds are Rs.1000 , Rs.2000 , Rs.5000 and alike.
Most of the bonds make fixed interest payment till the maturity period. The specific rate
of interest is known as Coupon Rate. Coupons are paid quarterly, semi-annually &
annually. At the end of the maturity period, the value is repaid.
Features of Bonds
Repayment
of Principal
Indenture
Maturities
Time
Period
Interest
Payment
Pledge of
Security
Call
Types of Bonds
Corporate Bonds
Premium Bonds
Discount Bonds
Investment Bonds
Fixed Income Bonds
Government Bonds
Convertible Bonds
Mortgager Bonds
High Yield Bonds
Municipal Bonds
Calculate Bond Price
Bond valuation includes calculating the present value of the bond's future interest
payments, also known as its cash flow, and the bond's value upon maturity, also known
as its face value or par value.
Par Value : 10,000
Settlement Date : 10/8/2014
Maturity Date : 11/10/2016
Annual Rate : 15%
Yield : 10%
Redemption Value : 15000
Payments : Semi-Annually
Calculated
Price: $14,997.31
Prev Coupon Date: 05/10/2014
Next Coupon Date: 11/10/2014
Coupon Days: 180
Coupon Days Past: 148
Next Coupon (days): 32
Number of Coupons: 5
Risks Involved with Bonds
Interest-Rate Risks
Reinvestment Risks
Call Risks
Credit Risk
Inflation Risks
Exchange-Rate Risks
Liquidity Risks
Volatility Risks
Term Structure of Interests Rates
The relationship between interest rates or bond yields and different terms or maturities. The
term structure of interest rates is also known as a yield curve and it plays a central role in an
economy. The term structure reflects expectations of market participants about future changes
in interest rates and their assessment of monetary policy conditions.

Theories Behind Term Structure
Determinants of
Interest Rates
Monetary & Credit Policy
Inflation
Effect of Globalization Fed
Watching
Uncertainty
Growth in the Economy
Forward Rate Agreements
Forward Rate Agreement (FRA) is a forward contract
between two parties to exchange an interest rate differential
on a notional principal amount at a given future date in
which one party, the Long, agrees to pay a fixed interest
payment at a quoted contract rate and receive a floating
interest payment at a reference rate (Underlying rate).

Characteristic of FRA
Structure is
same for all
currencies
FRAs mature in
a certain
number of
days
Contract
covers a
notional
amount
FRA may settle
in fewer days
Quotes
Contract
expiring
30 days LIBOR
Use of FRA
By market participant who wish to hedge against future interest rate
risks by setting the future interest rate today
By market participant who want to make profits based on their
expectations of the future development of interest rates.
By market participants
Introduction to Swaps
A swap is a contract calling for an exchange
of payments, on one or more dates,
determined by the difference in two prices.
A swap provides a means to hedge a stream
of risky payments.
A single-payment swap is the same thing as a
cash-settled forward contract.
Characteristics of Swaps
Basically a
Forward
Double
Coincidence
of wants
Comparative
Credit
Advantages
Flexibility
Necessity of an
Intermediary
Settlements
Long Term
Agreement
Types of Swaps
Interest
Rates
Swaps
Currency
Swaps
Commodity
Swaps
Equity
Swaps
Basis Rates
Swaps
Differential
Swaps
Credit
Default
Swaps
Functions of Swap
Transactions
Financing
Function
Arbitrage
Function
Hedging
Function