Fixed income is doing my head in

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pepp

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chap 68 and 69 in particular. I think i can make 200 questions myself that i wont be able to answer... thats how many relationships there are.

This one a refresher,

A premium bond has less reinvestment risk. Go figure.
 
pepp Wrote:
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> chap 68 and 69 in particular. I think i can make
> 200 questions myself that i wont be able to
> answer... thats how many relationships there are.
>
> This one a refresher,
>
> A premium bond has less reinvestment risk. Go
> figure.


premium bond means the coupon is > YTM

note that higher coupons have higher reinvestment risk

i am doing EQ/FI book, have been all day. i am happy becuase i am at page 300 (out of 500) and i began this book last night.)

will crush FI now after i get frappacino
 
premium bond has a large coupon...so when you receive large cash flows you are subject to higher reinvestment risk...the more money you get the higher the risk.

Premium Coupon rate > YTM, with par Coupon rate = YTM, and with discount bond, Coupon rate < YTM....pepp remember this as a discount bond offers a small coupon, that's why it is a discount bond...good luck, I'm out of here.



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 09:59PM by Dreary.
 
Yeah. Warned you that they could be a mind f--k.

Get the big items down

- Premium/Discount Bonds
- Price Volatility
- Drivers of Reinvestment Risk / Yied Volatility
 
good job.

Now, write these types of problems

Given spot rates compute forward rate
Given forward rate compute spot rates
Given forward rates compute forward rates
Given forward and spot rate compute forward rate
Given forward and spot rate compute spot rate

Given yield curve, compute any of the above 5.
 
pepp Wrote:
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> good job.
>
> Now, write these types of problems
>
> Given spot rates compute forward rate
> Given forward rate compute spot rates
> Given forward rates compute forward rates
> Given forward and spot rate compute forward rate
> Given forward and spot rate compute spot rate
>
> Given yield curve, compute any of the above 5.


bootstrap to get spots and use forward formula in book to get forwards. it is too long to post here, but it is in back of volume 5

off for another couple of hrs
 
Well, yes it was easy one to say premium bonds have higher reinvestment risk.

But heres another way to look at it,

Since all bonds approach par value, premium bonds have negative capital gains, hence reinvestment income must make up for the capital loss.
 
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