Fixed Income Securities: Tools for Today's Markets (2nd by Bruce Tuckman
By Bruce Tuckman
From the again Cover
Praise for fastened source of revenue Securities, moment Edition
"What distinguishes this booklet from many others at the topic is that Tuckman has skillfully mixed intuitive reason with mathematical research to provide readers a transparent and deep realizing of the marketplace. Tuckman has written a accomplished reference ebook that are supposed to be chanced on at the desks of either professional practitioners and beginners alike."
-Gerald Lucas, Senior govt Strategist
Director, international Securities examine, Merrill Lynch
"This remarkable publication bargains a well-written and transparent educational for plenty of of the state of the art analytical ideas and types utilized in perform. Combines a wealth of institutional wisdom, useful instruments, and sensible examples, whereas giving a transparent figuring out of the underlying theory."
-Francis Longstaff, Professor of Finance
The Anderson college at UCLA
"An very good reference for a person desiring to bridge the space among monetary arithmetic thought and the perform of monetary markets."
-Marek Musiela, BNP Paribas
"This is a very readable ebook with a stability among technical aspect and functional program. in contrast to different books within the quarter, thorough and tightly knit chapters replicate Tuckman's special history as a well-respected educational and marketplace participant."
-Tony D. Kao, coping with Director, worldwide mounted Income
GM Asset Management
About the Author
BRUCE TUCKMAN, PhD, is a coping with Director within the fastened source of revenue and Derivatives department of credits Suisse First Boston. After receiving his doctorate in economics from MIT, he grew to become a professor of finance at long island University's Stern university of commercial and a traveling professor at UCLA's Anderson Graduate university of administration. He started his Wall road occupation at Salomon Brothers' fastened source of revenue Proprietary buying and selling team.
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Additional info for Fixed Income Securities: Tools for Today's Markets (2nd Edition)
5 exceeds the spot rate to time t. 5 is less than the spot rate to time t. Proof: Reverse the inequalities in the proof of proposition 1. CHAPTER 3 Yield-to-Maturity hapters 1 and 2 showed that the time value of money can be described by discount factors, spot rates, or forward rates. Furthermore, these chapters showed that each cash ﬂow of a ﬁxed income security must be discounted at the factor or rate appropriate for the term of that cash ﬂow. In practice, investors and traders ﬁnd it useful to refer to a bond’s yield-to-maturity, or yield, the single rate that when used to discount a bond’s cash ﬂows produces the bond’s market price.
Intuitively, if it is appropriate to discount all of a bond’s cash ﬂows at the rate y, then a bond paying a coupon rate of c is paying the market rate of interest. Investors will not demand to receive more than their initial investment at maturity nor will they accept less than their initial investment at maturity. Hence, the bond will sell for its face value. Second, when c>100y and F=100, P>100. If the coupon rate exceeds the yield, then the bond sells at a premium to par, that is, for more than face value.
The answer is that the one-year zero earns a different rate because the investor and the issuer of the bond have committed to roll over the principal balance at the end of six months for another six months. This type of commitment is an example of a forward loan. More generally, a forward loan is an agreement made to lend money at some future date. The rate of interest on a forward loan, speciﬁed at the time of the agreement as opposed to the time of the loan, is called a forward rate. An investor in a one-year zero can be said to have simultaneously made a spot loan for six months and a loan, six months forward, with a term of six months.