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Bonds

F. NADEEM MERCHANT

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Presented ByName Roll NO.

Adil Shaikh 20

Afrin chaudhri 25

Shahrukh kinnariwala 29

Masihuddin khan 30

Amrin patel 31

Hussain shaikh 35

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Meaning of Bonds

A bond is a contract that requires the borrower to pay the interest incom

resembles the promissory note issued by the government and the cor

value of the bond indicates the face value of the bond i.e., the value sta

paper. Generally, the face values of the bonds are Rs.1000 , Rs.2000 , Rs

Most of the bonds make fixed interest payment till the maturity period.

of interest is known as Coupon Rate. Coupons are paid quarterly, s

annually. At the end of the maturity period, the value is repaid.

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Features of Bonds

Repaymentof PrincipalIndenture

MaturitiesTime

Period

InterestPayment

Pledge ofSecurity

Call

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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

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Calculate Bond Price

Bond valuation includes calculating the present value of the bond's future interepayments, also known as its cash flow, and the bond's value upon maturity, also knowas its face value or par value.

Par Value : 10,000

Settlement Date : 10/8/2014

Maturity Date : 11/10/2016Annual Rate : 15%

Yield : 10%

Redemption Value : 15000

Payments : Semi-Annually

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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

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Risks Involved with Bonds

Interest-Rate Risks

Reinvestment Risks

Call Risks

Credit Risk

Inflation Risks

Exchange-Rate Risks

Liquidity Risks

Volatility Risks

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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 change

in interest rates and their assessment of monetary policy conditions.

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Theories Behind Term Structure

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Determinants ofInterest Rates

Monetary & Credit Policy

Inflation

Effect of GlobalizationFed

Watching

Uncertainty

Growth in the Economy

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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).

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Characteristic of FRA

Structure issame for allcurrencies

FRAs mature ina certain

number ofdays

Contractcovers anotionalamount

FRA may settlein fewer days

Quotes

Contractexpiring

30 days LIBOR

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Use of FRA

By market participant who wish to hedge against future interest rat

risks by setting the future interest rate today

By market participant who want to make profits based on theirexpectations of the future development of interest rates.

By market participants

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Introduction to Swaps

A swap is a contract calling for an exchangeof payments, on one or more dates,

determined by the difference in two prices.

A swap provides a means to hedge astreamof risky payments.

A single-payment swap is the same thing as acash-settled forward contract.

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Characteristics of Swaps

Basically aForward

DoubleCoincidence

of wants

ComparativeCredit

Advantages

FlexibilityNecessity of an

IntermediarySettlem

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Types of Swaps

InterestRatesSwaps

CurrencySwaps

CommoditySwaps

EquitySwaps

Basis RatesSwaps

DifferentialSwaps

CreditDefaultSwaps

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Functions of SwapTransactions

FinancingFunction

ArbitrageFunction

HedgingFunction