Interest Rate and Bond Valuation
Bonds and Bonds Valuation
Coupon 息票
The stated interest payment made on a bond.
Face Value = Par Value面額
The principal amount of a bond that is repaid at the end of the term.
Coupon Rate 票面利率
The annual coupon divided by the face value of a bond.
Maturity到期日
The specified date that the principal amount of a bond is paid.
Yield to Maturity 到期殖利率
The rate required in the market on a bond.
Bond Value 債券價值計算
Bond Value = Present Value of Coupon + Present Value of the Face Amount
= C*[1-1/(1+r)^t]]/r + F(1+r)^t
= C*PVIFA + F*PVIF
Interest Rate Risk 利率風險
1.All other things being equal, the longer the time to maturity, the greater the interest risk.
2.All other things being equal, the lower the coupon rate, the greater the interest risk.
Current Yield 當期殖利率= 票面利息/債券價格= C/Pbond
More on Bonds Features
Difference Between Bonds(Debt) and Equity
1.Debt is not an ownership, credit holders do not have voting power
2.Payment on debt is the cost of doing business, which is tax deductible.
3.Unpaid debt is a liability of the firm. Creditors can legally claim the assets of the firm.
The Indenture 契約
The indenture is the written agreement between the corporation and its creditors.
1.Term of Bond
Registered form 記名債券
Bearer form 無記名債券
2.Security 擔保
Collateral 擔保品
Mortgage 抵押品
Debenture 信用債券，Unsecured bond,
3.Seniority 優先權
Senior第一順位，Junior第二順位，subordinated次級，無擔保
4.Repayment 償還
Sinking funds (償債基金) is an account managed by the bond trustee for the purpose of repaying the bonds.
5.The Call Provision 贖回條款
Agreement that gives the issuer the option to repurchase a bond at a specific price prior to maturity.
6.Protective Covenant
A part of indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender’s interest.
Bond Ratings
Some Different Types of Bonds 債券的種類
Government Bonds 政府債券
Treasury Bill – below one year
Treasury Note – below ten years
Treasury Bond – longer than 10 years
Zero Coupon Bonds 零息債券
A bond pays no coupon but sold at much lower price.
Floating-Rate Bonds 浮動利率債券
The coupon payment is adjustable, which is tied to interest index. The holder has the right to redeem the note at par on the coupon payment date after some specific amount of time. Also, it has a floor or a ceiling for coupon rate.
跟著利率指數調整。像是TIPS跟著通膨率調整。
Structured Notes 結構性債券
Bonds that are based on stocks, commodities, or currencies.
Convertible Bonds 可轉換債券
It can be swapped for a fix no. of shares of stock anytime before maturity date.
Put Bonds 可賣回債券
The holder can force the issuer to buy back the bond.
Bond Markets
Bid Price買價
The price that a dealer is willing to pay for a security.
Asked Price 賣價
The price that a dealer is willing to take for a security.
Bid-Ask Spread
The difference between the bid price and the call price.
Clean Price
The price of a bond net of accrued interest, this is the price that is typically quoted.
Dirty Price
The price of a bond including accrued interest (孳息), also called full price or invoice price. This is the price that the buyer actually pays.
範例：
Inflation and Interest Rates
Real Rates 實質利率
Interest rate that is adjusted by inflation.
Nominal Rates名目利率
Interest rate that is not adjusted by inflation.
The Fisher Effect
The relationship among nominal returns, real returns and inflation.
1+R = (1+r) * (1+h)
R= nominal rate
r= real rate
h= inflation rate
Determinants of Bond Yields
Term Structure of Interest Rate 利率期間結構
The relationship between nominal interest rate on default free, pure discount securities and time to maturity. 不考量違約風險，到期期間與殖利率的關係。
Treasure Yield Curve
殖利率曲線以殖利率與到期期間所做出的曲線。普通的殖利率曲線Normal Yield Curve，到期期間越長，殖利率越高，到期期間越長，殖利率越低的，則是Inverted Yield Curve，可能代表經濟衰退，需求減少。
Inflation Premium 通膨溢酬
The portion of a nominal interest rate that represents compensation for expected future inflation.
Interest Rate Risk Premium 利率風險溢酬
The compensation investors demand for bearing interest rate risk.
Default Risk Premium違約風險溢酬
The portion of a nominal interest rate that represents compensation for the possibility of default.
Taxable Premium 稅額風險溢酬
The portion of a nominal interest rate that represents compensation for unfavorable tax status.
Liquidity Premium 流動性風險溢酬
The portion of a nominal interest rate that represents compensation for lack of liquidity.