Abstract: Bond market development has now gained priority in fostering financial sector growth in all economies whether developed or developing. Asian and Mexican crises have given a clear message that this market‚ falling between equity and bank finance‚ needs proper attention failing which investment climate within these countries would remain under threat. With this perspective‚ the paper has been drafted highlighting Pakistan’s economic conditions‚ its financial market architecture‚ securities
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FUNDAMENTALS The interest rate or required return represents the cost of money. It is the compensation that a supplier of funds expects and a demander of funds must pay. Usually the term interest rate is applied to debt instruments such as bank loans or bonds‚ and the term required return is applied to equity investments‚ such as common stock‚ that give the investor an ownership stake in the issuer. In fact‚ the meaning of these two terms is quite similar because‚ in both cases‚ the supplier is compensated
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Advantages/Disadvantages Advantages of bonds Bonds as an investment instrument bring a lot of advantages to the bond holders. Firstly‚ bonds are more stable than stocks. Investing in bonds involve lower risks compared to stocks. Normally‚ bond holders are more likely to receive the coupon rate (interest) from bond issuers. So‚ there is very less chances that bond holders will lost out on their investment. Also‚ they can feel relieved when they invest in the reliable investment and taking less
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Bond Practice Problems II 1. Seven years ago your firm issued $1‚000 par value bonds paying a 7% semi-annual coupon with 15 years to maturity. The bonds were originally issued at par value. a. What was the original yield to maturity on the bonds? They were issued at par…so the YTM = Coupon rate: 7% b. If the current price of the bonds is $875‚ what is the yield to maturity of the bonds TODAY? 1000 FV .07(1000)÷2= PMT (15-7)*2 = N -875 PV I/Y = 4.623*2 = 9.25% c. If the yield
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invest in bonds for the short-term or the long-term depends on your investment goals and time frames‚ the quantity of jeopardy you are willing to take and your tax status. When considering a bond investment strategy‚ keep in mind the importance of diversification. As a universal rule‚ it’s by no means a good idea to put all your assets and all your risk in a single asset class or investment. You will want to expand the risks within your bond investments by creating a portfolio of a number of bonds‚ each
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VIETNAM BOND MARKET Nguyen Ngoc Anh Ministry of Finance – Vietnam 11/2009 A YOUNG AND GROWING MARKET • The Vietnam bond market development was boosted when Vietnam entered WTO in 2006. Total market capitalsisation is now at 15% of GDP. >500 government bonds outstanding on some USD 12 billion After 2008 foreign exodus the market today is predominantly Vietnamese with a handful of big players. In the absence of mutual funds and pension funds‚ banks dare key players. BOND GROWTH 2001-2008
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marks) The yield to maturity on a bond is: (a) based on the assumption that any payments received are reinvested at the coupon rate of return. (b) based on the assumption that any payments received are reinvested at the current yield. (c) below the coupon rate when the bond sells at a discount‚ and above the coupon rate when the bond sells at a premium. (d) none of the above. B. (2 marks) In which one of the following cases is the bond selling at a premium? (a) Coupon
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Bond issue price and premium amortization Bond issue price and premium amortization On January 1‚ 2011‚ Placido Co. issued ten-year bonds with a face value of P1‚000‚000 and a stated interest rate of 10%‚ payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% ......................................... .386 Present value of 1 for 10 periods at 12% ...........
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Treasury Bond Yields ______________________________________________________________________ I. Introduction The Federal Open Market Committee raised the federal funds target interest rate from the historically low 1% to 1.25% at its meeting in June 2004. Macroeconomic theory tells us that long-term interest rates tend to move in the same direction‚ and generally in concert with‚ shortterm interest rates (Abel 2005). So‚ we would expect the yield on a long-term asset like the10year Treasury bond‚ which
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LECTURE 7 BOND VALUATION CLASS QUESTIONS Information for 1 & 2 Consider the following $1‚000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 $909.09 B 2 $811.62 C 3 $711.78 D 4 $635.52 1). The yield to maturity on bond A is . a. 10% b. 11% c. 12% d. 14%
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