...Yield Curve and Bond Valuation Name: Lecturer: Course: Date: Yield Curve and Bond Valuation Question 1 and 2 Based on the information retrieved from the Board of Governors of the Federal Reserve System on a 1-month business day, the following information concerning historical dairy interest rates on the U.S treasury was obtained. The rates were picked from the current dates (1st January2012) back to five years a go (1st January 2007). Whereby, if that date was not a business date the preceding date was selected as shown in the table below. |Business Date chosen Five Years Ago |1st January 2007 | |1-month Nominal T-bill Rate on that date |5.02% | |3--month Nominal T-bill Rate on that date |4.79% | |6-month Nominal T-bill Rate on that date |5.11% | |1-year Nominal T-note Rate on that Date |5% | |5-year Nominal T-note Rate on that Date |4.68% | |10-year Nominal T-note Rate on that Date ...
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...The yield curve is a graph showing the relationship between bond yields and maturities. This particular U.S. Treasury yield curve is an upward-sloping, or “normal,” yield curve. The shape of the yield curve indicates that short-term interest rates were lower than long-term interest rates. The upward-sloping yield curve is considered the usual situation in the market because short-term securities have less interest rate risk than longer-term securities and, thus, a smaller Maturity Risk Premium (MRP). Therefore, short-term rates are typically lower than long-term rates. There are two primary theories that explain the factors which determine the shape of the yield curve: (1) the pure expectations theory and (2) the liquidity preference theory. The pure expectations theory states that the shape of the yield curve depends on investors’ expectations about future interest rates. According to the pure expectations theory, long-term interest rates are a weighted average of current and expected future short-term interest rates. In addition, investors are indifferent with respect to maturity in the sense that they do not view long-term bonds as being riskier than short-term bonds. Therefore, the Maturity Risk Premium (MRP) is equal to zero under the pure expectations theory. The pure expectations theory would suggest that this particular U.S. Treasury yield curve is upward-sloping because interest rates are expected to increase in the future. This increase could be due to an...
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...MEASURING YIELD CHAPTER SUMMARY In Chapter 2 we showed how to determine the price of a bond, and we described the relationship between price and yield. In this chapter we discuss various yield measures and their meaning for evaluating the relative attractiveness of a bond. We begin with an explanation of how to compute the yield on any investment. COMPUTING THE YIELD OR INTERNAL RATE OF RETURN ON ANY INVESTMENT The yield on any investment is the interest rate that will make the present value of the cash flows from the investment equal to the price (or cost) of the investment. Mathematically, the yield on any investment, y, is the interest rate that satisfies the equation. ------------------------------------------------- P = ------------------------------------------------- ------------------------------------------------- where CFt = cash flow in year t, P = price of the investment, N = number of years. The yield calculated from this relationship is also called the internal rate of return. ------------------------------------------------- ------------------------------------------------- Solving for the yield (y) requires a trial-and-error (iterative) procedure. The objective is to find the yield that will make the present value of the cash flows equal to the price. Keep in mind that the yield computed is the yield for the period. That is, if the cash flows are semiannual, the yield is a semiannual yield. If the cash flows are monthly, the yield is a...
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...or hospitality to maximize profit is known as Yield Management. Industries such as airline industry or hotel industry tend to adopt this technique to allocate limited resources. Sometimes it is known as perishable asset revenue management or simply revenue management because it is also adopted by companies which deal with highly perishable goods or “services which cannot be stored at all” (Netessine, 2002). Kimes and Wirtz (2003) defined revenue management as “the application of information systems and pricing strategies to allocate the right capacity to the right customer at the right price at the right time”. As pricing serves as an important factor in yield management, I would like to discuss the issues of pricing strategy regarding to the application of yield management. The pricing strategy involves in yield management is commonly known as price discrimination. The hotel or airline industries tend to use this most often due to the following industrial traits: 1. Fixed capacity 2. Predictable demand 3. Perishable inventory 4. Appropriate cost and pricing structures 5. Uncertainty of the demand There are 6 elements in Yield Management. According to Forgacs (2010), Yield Management consists of product definition, competitive benchmarking, strategic pricing, demand forecasting, business mix manipulation, and distribution channel management. [pic] Figure 1: Six elements of yield management (Forgacs 2010) The ideal situation...
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...Bond Yields Interest rates have a big part in determining the yield of a bond. If interest rates rise, the bond will be worth less and if they fall bonds will be worth more. The Yield to Maturity or YTM is the rate of return the lender or borrower will earn if the bond is not sold before its maturity. It can be also referred to as the bond`s yield. In order to be able to calculate the Yield to Maturity, some of the things you would need to know are the current price, the par value, the interest payments, and the maturity date for the bond. A coupon is the stated interest payment made on a bond. The market value will be less than par value if the required rate of return is above the coupon interest rate. Bond will be valued above pay value if the required rate of return is below the coupon interest rate. Also, the lower the coupon rate the greater the interest rate risk. Interest rate risk refers to the risk of fluctuating interest rates. In other words, bond values have an inverse relationship to interest rates. Long-term bonds will have a greater interest rate risk than short-term bonds. Interest rates have a greater impact on long-term bonds because it takes longer for them to mature. Typically, the more you can earn from a bond the more risk there is to it. However, the more risk there is to a bond the more likely either the borrower might default. Bonds have a rating system which gives them a rating based on the likelihood...
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...Yield More Company you will have to implement the best practices to keep and to maintain the PCI DSS. First I will recommend you guys to install and configure a firewall to protect the credit card holder’s information. Then you will have to implement a secure password for the vendor system and not just use the default password for any of the devices. Encrypt transmission of the customer’s card number and pin over the open, public network, which mean when you store a card number encrypt all but the last 4 numbers of the card. Always have up-to-date anti-virus security software to protect from malware and different virus such as Trojan horse. Then you will need to assign an ID for each person with computer access, When then you will have to track and monitor the network to protect the card holders data. You must restrict the physical access to the data store from the credit cards, which you will have to apply biometric, eye scanner, passcode on the door for the ID for each person with access to the computer with the important data. I will recommend that you use all of the following listed above to keep a secure and updated database for the information to be keep safely and lower your risk of being sued for poorly secured card information if not stored properly. If you implement all of the following above you are taking care of all the things PCI DSS will be checking for with a yearly follow up. Why I stated you need a firewall is to keep the computer protect from unauthorized user...
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...Jurnal Mitra Ekonomi dan Manajemen Bisnis, Vol.1, No. 2, Oktober 2010, 163-175 ISSN 2087-1090 Memprediksi Tingkat Obligasi Perusahaan Manufaktur yang Listing di BEI Luky Susilowati1 dan Sumarto2 Fakultas Ekonomi, UPN “Veteran” Jatim 2Pascasarjana Magister Manajemen UPN “Veteran” Jatim Email: susilowati_luky@yahoo.com, sumarto_bg@yahoo.com 1Progdi Manajemen Abstract: All investor that will invest in capital market shall own the investment planning which effective started from existence of attention to balance of risk and result to be obtained. One of way of to see the risk in obligation attend to obligation grade of the company which have been publicized by institute which giving the grade of national share like PT. PEFINDO.This research aim to analyze the Profitability, Liquidity And Size Company influence as well as analyzing the difference of the Obligation time (Maturity) to predict obligation grade in the future at manufacturing business enlisted in BEI. Data used is secondary data by using sample as much 11 manufacturing business which enlist in BEI in period 2002 – 2006. To fulfill research target, hypothesis tested with the analysis of regression Logistics. From wald test that from fourth of the independent variable, only one variable which significant with significant value 0,05 that is Liquidity. While other independent variable do not significant. Key works: Obligation grade, profitability, liquidity, size, maturity. PENDAHULUAN Perusahaan yang memasuki...
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...Problem 5-1 Current market price Given: Interest paid annually $1,000 par value 12 years to maturity Coupon rate of 8% Yield to maturity of 9% Using a financial calculator phone app PMT=80 FV=1000 I=9% N=12 Current market price=$928.39 Problem 5-2 Yield to Maturity Given: Interest paid annually $1,000 par value 12 years to maturity Coupon rate of 10% Current price=$850 Using a financial calculator phone app PV=-850 PMT=100 FV=1000 N=12 Yield to Maturity=12.48% Problem 5-6 Market Risk Premium Given: Risk Free Rate=3% Inflation=3% for two years Current Yield=6.3% Current Yield=rRF+IP+MRP 6.3%=3%+3%+MRP MRP=.3% Problem 5-7 Current Price of the Bond Given: Interest paid semiannually $1,000 par value 8 years to maturity Coupon rate of 10% Yield to maturity of 8.5% Using a financial calculator phone app PMT=100 FV=1000 I=8.5% N=8 Current market price=$1085.80 Problem 5-13 Yield to Maturity Given: 5 years to maturity Par value of $1000 Coupon Rate=8% Current Yield=8.21% Using Excel =RATE(5,80,-974.42144,1000) Yield to Maturity= 8.65% Question 6-6 If a company’s beta were to double, would its expected return double? No, the expected return will increase but since the beta is multiplied by the market risk premium it will not double as the beta does. Problem 6-1 Portfolio Beta Given: $35,000 in stock1 Beta1=.8 $40,000 in stock2 Beta2=1.4 Portfolio beta= (.46667)(.8)+(.53333)(1.4)=1.12 Problem 6-2 ...
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...1-Turky Abdullah AL-Bussairi 2-Yasser Habib AL-Mutairi 3-Abdulrahamn Sa`ad AL-Huaifi 4-Abdulrahman hemdy AL-Harbi Abstract: We determined the elastic modulus, yield strength, tensile strength, modulus of toughens, elongation, reduction of area, as well as true stress and strain at rupture point for one specimen, aluminum,. We accomplished this by placing our specimen at a time into a universal testing machine (UTM), which, under computer control, slowly increased the tension force on each specimen, stretching each until failure. Purpose: The purpose of this experiment is to extract data on the material properties one specimen (aluminum), using a mechanically driven universal testing machine (UTM). The material properties include the following: the elastic modulus, 0.2% offset yield strength, ultimate tensile strength, modulus of rupture, modulus of resilience, as well as true strain and true stress at the point of rupture. Theory: Certain materials (those that are linear, homogeneous, elastic, and isotropic) can be described by their material properties. These properties include the modulus of elasticity, modulus of toughness, modulus of resilience, ultimate tensile strength, and yield strength. Once established by experimental means, these properties are then applied to all instances of that material undergoing the same type of stress, allowing one to design structural elements whose behavior can...
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...The percentage yield acts as a guideline to tell the successfulness of the synthesis experiment. A low percentage yield enable d means that the conditions were not most favorable and could be better. The percentage yield of the synthesized aspirin obtained in this experiment is 13.8%, which is considered as relatively low. Some errors like random human errors and mechanism errors may have occurred. One of the sources of error might occur during the addition of ice water to the mixture for complete recrystallisation. There is a possibility that the ice water is not at its optimal temperature. The temperature of the ice water will increase because it is placed under room temperature for a period of time when waiting for the Erlenmeyer flask...
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...1.0 INTRODUCTION 1.1 Beam Deflections 1.2 Theory - Calculations DeflectionF formula for the load given above: A determination of flexural stress yields: When rectangular it is Where; δ = Deflection (mm) E = Coefficient of Elasticity L = Span (mm) I = Inertia Factor Mb = Moment of flexure (Nmm) F1 = Load occasioned by weight Wb = Resistance to flexure (mm3) of Load Device (N) σb = Flexural Stress (N/mm2) F = Load of occasioned by additional weight (N) 1.3 Objectives * To investigate the relationship between load, span, width, height and deflection of a beam placed on two bearers and affected by a concentrated load at the center. * To ascertain the coefficient of elasticity for steel brass and aluminium 2.0 METHODOLOGY 2.1 Procedure - Experiement 1A * Investigate the relationship between load and deflection. 1) Set the bearers so that a span of 600 mm is obtained. The interval between each groove on the shafts of the apparatus is 100 mm. 2) Place a test specimen with dimensions of 4 x 25 mm, on the bearers and mount the load device in the center of the test specimen. 3) Set the testing device so that the top of the gauge is centered on the upper plane of the load device. Lower the gauge so that its small hand is at about 10 and set the gauge to zero by twisting its outer ring. 4) Load the weights as shown in the table below and read off the deflection...
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...Laboratory Experiment: Uniaxial Testing of Civil Engineering Materials Table of Contents Introduction 1 Procedure 1 Experimental 1 Analysis 1 Results 2 Conclusion 4 References 5 Introduction In this set of laboratory experiments, uniaxial tests were performed on two specimens: 1) a steel bar in tension, and 2) an aluminum bar in tension. The specific types of materials used in this experiment are grade 50 for the steel, and type 2017-T351 for the aluminum. The experimental procedure and analysis give a better insight to the behavior of different ductile materials under normal stresses. Through the analysis of the experimental data, various properties of the material can be found and these properties are used in the design of engineering structures which use these materials. Through the use of plots of the stress versus strain for each material, and tables providing material properties, the report will include the following objectives for all materials: • Describe the behavior in the elastic range by determining the moduli of elasticity, and yielding stresses. • Describe the behavior of the materials beyond yielding by determining plastic stresses, ultimate stresses, rupture stresses, and ductility as well as indicating the range of strain hardening and necking. • Compare computed values obtained from the test results to expected values found for steel and aluminum. Further...
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...coupon Paid Annually -5 years to maturity / Market yield 0 | 1 | 2 | 3 | 4 | 5 | | 40 | 40 | 40 | 40 | 40 | | | | | | 1000 | Calculator Solution N=5 Bond Terminology Face Value or Par Value- Amount to be repaid at end of loan Coupon- Stated interest payment made on bond Coupon Rate- The annual coupon/ Face Value of Bond Maturity- Specific Date the bond principle must be repaid Time to Maturity- the number of years until maturity Yield to Maturity- Return to bond holder if they hold the bond to maturity, Market driven rate, I/Y on your calculator Current Yield= (Annual coupon$/Current bond price) *100 Bond Par Value | 1,000.00 | FV | 1,000 | Years to Maturity | 5.00 | N | 5 | Coupon Rate | 6.0% Paid Annually | PMT | 60.00 | Yield to Maturity | 6.8% | I/Y | 6.80 | Current Price | ???? | CPT PV | | Par Value | 1,000.00 | FV | 1,000 | Years to Maturity | 5.00 | N | 10 | Coupon Rate | 6.0% Paid Semiannually | PMT | 30.00 | Yield to Maturity | 6.8% | I/Y | 3.40 | Current Price | ???? | CPT PV | 966.57 | Bond Information $1,000 Face or Par Values 10 Years to Maturity 6.6% coupon rate/ Paid SEMIANNUALLY Market Yield to Maturity 6.2% N | 20 | I/Y | 3.1 | PMT | 33 | FV | 1000 | CPT PV | $1029.48 | Bond Price | 980.00 | N | 16 | Par Value | 1000.00 | PV | (980.00) | Coupon Rate | 6% PAID SEMIANNUALLY | PMT | 30.00 | Years to Maturity | 8 | FV | 1,000 | Yield to Maturity | ???? | CPT I/Y | 3.16119%*2=6.32...
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...EXPERIMENT | Vanillin | Acetone | Vanillindeneacetone | Chemical formula | C8H803 | C3H60 | C11H1203 | Molecular weight | 152.25 g/mol | 58.08 g/mol | 192.21g/mol | Density (g/cm3) | 1.06 | 0.788 | | Amount used | | | | Total moles | | | | Theoretical yield | | | | Percentage yield | | | | TABLE 2: DATA FROM EXPERIMENT: REAGENTS | Sodium Hydroxide | Hydrochloric Acid | Chemical formula | NaOH | HCl | Molecular weight | 39.997 g/mol | 36.46 | Denisty | 2.13 | 1.18 | Amount used | 3mL | 7mL | Total moles | 0.i598 | 0.227 | TABLE 3 : IR SPECTRUM Peaks (cm-1) | Functional group | 3699.8 | OH group | 3267.6 | Alkene | 1634.79 | Aromatic | CALCULATIONS: Total moles of Vanillin = 0.5g/152.15 = 0.0033 moles of vanillin. Total moles of acetone = (4mL * 0.788)/ 158.08 = 0.0199 moles of Acetone. Theoretical yields: Vanillin = 0.5g * 1mole * 1mole * 192.21 = 0.632g 152.15 1mole 1mole Acetone = 4ml * 0.788 * 1mole * 1mole * 192.21 = 3.832g 1mole 158.08 1mole 1mole Therefore, vanillin is the limiting reagent. % yield = Actual yield *100 = 0.274 * 100 = 43.35% Theoretical yield 0.632 DISCUSSION: Vanillin also known as 4-hydroxy-3-methoxy benzene comes from an orchid (Vanilla planifola). Vanillin is extracted out of its seedpods composition of the extracts has roughly 200 different molecules with vanillin being the most abundant component...
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...dividends would be steady or will increase at a perpetual rate for years. But we know that due to the ups and downs of the economy it can be pretty tricky to forecast exactly what the dividends would be year from now. #3 Yes I was noticing in order to calculate the DDM there are three main inputs to have and I was missing at least one or tow to be able to calculate it. DPS(1) = Dividends expected to be received in one year Ks= requires rate of return for a specific investment G=growth rate in dividends in years from now at some point I found it tricky to come up with these components to calculate for DDM. As I searched on line there are more than one way to calculate DDM so it was a bit challenging. !!! #4 In bond investing, yield is the tool to measure the return of...
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