By Patrick J. Brown
This publication offers an creation to the bond markets for practitioners and new entrants who have to comprehend what they're, how they paintings and the way they are often used, yet don't need to be intimidated via mathematical formulae. by way of the tip of the e-book readers could be in a position to come to a decision no matter if to take a position within the bond marketplace. The mathematical formulae may be relegated to the appendices and supplemented through a better half web site which permits clients to go into their very own bond industry investments, to simulate expected occasions and spot the results.Patrick Brown is recognized as Chairman of the ecu Bond fee (recently retired)The purely bond ebook that doesn't depend seriously on mathematical formulae
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Additional info for An Introduction to the Bond Markets (The Wiley Finance Series)
The detailed formulae for all the calculations are given in Appendix B. Even with the actual calendar day calculation, there are variations. For example, with Japanese Government bonds, interest accrues every day except on 29 February in a leap year. Similarly, in the denominator of the accrued interest equation, the number of days in year calculation varies from bond to bond, and even sometimes from coupon-payment period to How Do You Price and Value a Bond? 33 coupon-payment period for the same bond.
This is often done to allow for possible different tax treatments. 1 lists the outstanding strippable UK gilt-edged securities on 6 May 2005. 1 Outstanding strippable UK gilt-edged securities on 6 May 2005 Security Total amount in issue (£ million) Amount held in strippable form at 25/04/05 (£ million) 9 821 12 133 11 817 11 403 14 613 13 616 11 753 12 505 13 714 13 410 13 359 7 581 17 203 15 847 12 080 14 211 12 588 14 643 162 172 75 130 30 7 110 1 212 2 209 167 225 53 217 585 161 116 8 12 % Treasury 2005 7 12 % Treasury 2006 4 12 % Treasury 2007 7 14 % Treasury 2007 5 % Treasury 2008 4 % Treasury 2009 5 34 % Treasury 2009 4 34 % Treasury 2010 5 % Treasury 2012 5 % Treasury 2014 4 34 % Treasury 2015 8 % Treasury 2015 8 % Treasury 2021 5 % Treasury 2025 6 % Treasury 2028 4 14 % Treasury 2032 4 14 % Treasury 2036 4 34 % Treasury 2038 Source: UK Debt Management Office.
This approach defines the value of a bond as the discounted value of all expected future payments. ’. Before we look at some of the factors that influence the discount rate that the market puts on a bond, there is a small digression on compound interest. A loan of £1000, which will be repaid without any interest tomorrow, is worth more to the lender than a similar loan which is repaid in one year, two years’ time or even 10 years’ time. If we assume the lender would like to make a return of 5 % a year on the money, the loan that is repayable tomorrow is worth almost £1000.
An Introduction to the Bond Markets (The Wiley Finance Series) by Patrick J. Brown