Fixed Income Securities

 Fixed Profits Securities Dissertation

ANSWERS TO INQUIRIES FOR PART 1

(Questions are in bold print followed by answers. )

installment payments on your What is designed by a mortgage-backed security?

A mortgage-backed security is a security backed by a number of mortgage loans. Just like a bond that is callable, a mortgage-backed protection allows the investor to grant the borrower a possibility.

4. Precisely what is the cash flow of a 10-year bond that pays voucher interest semiannually, has a discount rate of 7%, and has a equiparable value of $100, 1000?

The principal or par worth of a relationship is the sum that the company agrees to settle the bondholder at the maturity date. The coupon price multiplied by principal with the bond supplies the dollar amount of the coupon (or annual sum of the interest payment). A 10-year connection with a 7% annual coupon rate and a principal of $22.99, 000 can pay semiannual fascination of (0. 07/2)($100, 000) = $3, 500 pertaining to 10(2) sama dengan 20 durations. Thus, the cash flow can be $3, five-hundred. In addition to this regular cash, the issuer in the bond is obligated for compensating the principal of $100, 500 at the time the past $3, five-hundred is paid.

6. Provide three explanations why the maturity of a bond is important.

There are three main reasons why the term to maturity of your bond is important. First, the word to maturity indicates the time period over which the holder with the bond can anticipate to receive the coupon repayments and the period of time before the primary will be paid in full. Second, the term to maturity is important because the deliver on a connection depends on it. The shape of the yield curve determines the way the term to maturity affects the produce. Third, the buying price of a bond will vary over the life since yields on the market change. The volatility of your bond's cost is dependent on it is maturity. More specifically, with all other factors constant, the longer the maturity of the bond, the greater the price volatility resulting from an alteration in market yields.

8. Explain whether or not an investor can determine today what the cash flow of a...

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