Chapter 4 - Bonds Flashcards

Question

Government Bonds in Emerging Markets

Answer 1

- Historically only formed small part of global bond markets due to limited issuance, poor data quality, market illiquidity and regular economic crises - Brady Bonds first issued in 1980 to overcome issue of LatAm govts defaulting on debt. Defaulted bank loans converted into collateralised ZCBs. Issued in USD as investors do not want to purchase things in local currency - Risk and return varies (e.g. China is A rated whilst Argentina CCC+ according to Fitch) - Currently worth 28% of global bond issuance - 'Hard currency' (currencies which are seen to be more stable) Eurobonds are example of buying bonds with exposure to credit risk but you are removing FX risk

Answer 2

- Coupon and principal adjusted in line with inflation index (e.g. RPI in UK, which will be more in line with CPIH in 2030) - To calculate inflation adjustment factor: = (RPI on coupon date - 3 months) / (RPI on issue date - 3 months) x 1% - Inflation adjustments have indexation lag which is amount of time between when inflation is measured to bond payment (8 months for gilts issued before 2005, 3 months for gilts issued after) - Inflation linked gilts currently account for 24% of govt debt so they are looking to reduce this as it puts them at risk of an inflation shock

Answer 3

- some govts issue foreign currency bonds to finance foreign currency reserves - e.g. in UK, there are outstanding bonds in dollars and euros (trade like eurobonds not gilts) - hard currency market is broadest category of sovereign debt in emerging markets - most issued in US dollars which offers investors lower currency exchange risk

Answer 4

- Coupons and the bond are stripped apart, so different people can receive redemption proceeds to the coupon - key benefits of this are that investor can pricisley match their liabilities, removing reinvestment risk - Only gilts designated as 'strippable' are eligible Only Gilt-Edged Market Makers (GEMMs), the BoE or the Treasury are able to strip gilts

Answer 5

1. Green Government Bonds - first issued in 2021, developed in accordance with ICMA Green Bond Principles - proceeds allocated to clean transport, climate adaption, renewable energy etc. - aimed to raise £15 billion but investor demand exceeded £100 billion 2. NS&I Green Savings Bond - fixed term products where savings contribute towards green projects - rate of interest taxable and fixed for three years - no withdrawals till end of term

Answer 6

- primary responsibility of issuing agency is to ensure govt is able to borrow money to fund budget deficit - can either issue new bonds or a tranche of existing stock - once issued, secondary market trading overseen by issuing agency and stock exchange - DMO is issuing agency for UK govt - 25% of UK govt debt is inflation linked, putting them at risk of inflation shocks. Govt is therefore reducing this proportion over merdium term

Answer 7

1. Competitive - investors apply for new bonds at price they are willing to pay - bids sent to GEMMs - bonds issued to highest bidders at their bid price so no single final price - bid-to-cover ratio expresses the demand for bond issue and calculated via no. of bids received/no. of bids accepts. Ratio below one suggests amount bid for is less than amount offered. Ratio over two suggests successful auction 2. Non-Competitive - applicants apply directly to DMO and receive bonds applied for in full, at weighted average of accepted prices - in UK, can apply for up to £500k of nominal value

Answer 8

- Where governments issue smaller quantities of stock to improve liquidity or market efficiency - In UK, issuing agency sell stock through primary dealers (GEMMs) - Issued stock could be the result of failed funding auction from previous issue - A tap is an issue of a gilt by issuing agency for exceptional market management reasons and not on a pre-announced schedule, so issuing agency can quickly issue smaller quantities of govt bonds by tap at short notice

Answer 9

- Banks and other financial institutions approved to trade securities with a national government, with intention of reselling securities to others - provide liquidity by quoting two way prices under all market conditions throughout trading day up to size agreed with issuing agency - must participate actively in bond issuance by bidding competitively in all auctions - must provide information to issuing agency on closing prices, market conditions and their dealer's positiopns and turnover - Their privileges include: 1. executive rights to competitive phone bidding at govt auctions (they don't get money for this but they are able to see flow of information) 2. exclusive facility to trade as a counterparty of DMO in secondary market operations 3. exclusive acess to inter-dealer broker screens

Answer 10

- primary dealers in gilt market in UK - must provide two way prices at size agreed with DMO but no requirement to use paticular system - free to choose how to disseminate their prices - Can provide quotes in gilt edged securities or index linked gilts - Must take part in weekly gilt auctions - Must report to DMO at end of the day on prices, position sizes etc - Priviledges include taking part in DMO secondary market operations, and exclusive access to gilt inter-dealer broker screens - If bid-cover ration below one, they are required to take up remaining gilts (underwrite the issue)

Answer 11

- Perform dual role as brokers (agents) who buy/sell govt bonds on behalf of their clients and dealers (principals) who buy/sell for their own account - Don't have same obligations/privilages as GEMMS (don't have to provide two way prices) - Often traditional financial service firms and large banks (not GEMMs) - Facilitate free flow of govt bonds on open market, and ensure their is a market in the securities for their clietns - Bound by 'best execution' rules (outlined in MiFID)

Answer 12

- Brokers than act soley between GEMMs - Arrange deals anonymously between primary dealers (GEMMs) - Not allowed to take principal positions - Act as agent (broker) but settle position as if they were the principal (dealer) - so GEMMs maintain anonimity - Used when GEMMs need to buy gilts to provide to their clients - GEMMs often do not want to deal directly with each other as don't want others knowing their trades

Answer 13

- Sale and repurchase agreement where seller of gilts agrees to buy them back at a specified future time (essentially borrowing cash using gilts as collateral) - Price bought back at is price sold at, the interest charged is called the repo rate - Legally binding - The reverse repo is the person who lends money and then holds gilts until they are bought back (essentally lending cash) - Benefit to borrower is potentially cheap source of short term finance due to the collateral posted - Benefit to lender is the security gained by holding a gilt - Standing Repo Facility (SRF) enable counterparties (GEMMs) to enter into reverse repo arrangements with central banks, often to cover a short position on the bonds. This enables smooth running of government bond market

Answer 14

- Pool large blocks of securities from institutional investors (e.g. pension funds) which are then loaned out to borrowers to cover short positions - Once the short position is closed out (with full purchase), borrowed bonds are transferred back - Commission usually 0.50% which is split between SBLI and lender - Minimal activity in this space in the UK since 1996 with introduction of repo market - Sometimes the lender will demand collateral

Answer 15

- UK, US, China and Japan govt bonds settle T+1 - European govt bonds settle T+2

Answer 16

- CREST is the central securities depository in the UK and is a same day clearning system allowing share and bond holders to hold assets in dematerialised form - Clears trades by matching settlement details provided by buyer and seller - Trades settle when CREST updates the register of the relevant company, and at same time moves money, and issues a receipt notification - For OTC trades, LCH (a clearing house for CREST) assumes responsibility for settling the transaction - CREST collects SDRT on behalf of HMRC

Answer 17

- Can effect prevailing price of bonds as indicate markets expectation of future interest rates - US 10 year Treasury is most active future contract as can hedge exposure to variety of fixed income assets, as well as opportunity to speculate on future direction of interest rates - Futures contract can be settled as cash or by delivering the bonds

Answer 18

- Market dealing tends to be away from major exchanges in decentralised dealer markets - Corporate issuer appoints a dealer to act as distributor and underwriter on their behalf and bonds issued via a placing - Dealer effectively acts as a market maker by being willing to buy or sell bonds

Answer 19

- Most corporate bonds issued are debentures - In some countries, it means debt which is backed by a specific asset (secured debentures) - In others, no security is provided (unsecured loan stock) - No requirement for security, but means coupon will be higher

Answer 20

- Bonds denominated in a currency other than that of the market in which they are issued - Allow issuers to access debt financing outside their domestic markets - Primarily held by institutions and mostly issued in bearer form - Traded OTC and trades matched through TRAX - Settled T+2 by major clearing houses such as Euroclear who hold certificates in vaults (they are immobalised and instead re-registered) - Unsecured debt so issued by highly rated companies - No withholding tax - Overseen by ICMA - Accrued interest calculated 30/360

Answer 21

- Bonds issued in a domestic market by a foreign company in the domestic market's currency - Regulated by the domestic markets authorities - Attractive to investors seeking foreign credit exposure without currency risk

Answer 22

- Debt instruments issued simultaneously in multiple markets - Issued in major international currencies and marketed to wide investor base - They are registered securities (electronically held) and subject to regulations of the countries in which they are sold

Answer 23

- A fixed charge (collateral) over a definable asset of the company - Usually land or freehold buildings as they are easily distinguished and the value will not significantly fall over term of debenture - Company cannot sell the asset without the lenders permission - If company fails to pay interest or repay capital, debenture holder can: 1. Appoint a receiver and get income from the assets held under charge 2. Take possesion of asset and sell it, using proceeds to repay debenture and then returning any excess to company

Answer 24

- Equitable charge on all the company's assets, both present and future, on terms that the company is able to use the assets in the normal course of business - Useful as allows the company to borrow without pledging specific assets - Assets are often stock

Answer 25

1. Bullet Bonds - principal repaid all at once on maturity 2. Serial Bonds - principal redeemed in instalments at regular intervals. Purpose is to protect bond holders as they are less risky 3. Optional Redemption - allows issuer to redeem bond if certain circumstances arise (callable/puttable) 4. Perpetual - no redemption date

Answer 26

1. Fixed Rate - coupon fixed throughout life 2. Zero Coupon - no coupons paid, investors instead receive difference between purchase price and nominal value at maturity 3. Discounted - a bond with no coupon or one with a coupon rate substantially lower than current interest rates. Bonds issued at discount to nominal value. Classed as deeply discounted if price is more than 15% lower than par value 4. Floating Rate Notes (FRNs) - coupon fluctuates with market rate of interest e.g. SONIA. Investors earns set rate above the index. These can have floors or caps where if index falls/rises to a set level, the coupon will be locked (known as mini-mazx bond) 5. Dual Currency - coupon and redemption are different currencies

Answer 27

- issues of corporate bonds can include equity sweeteners either by issuing bonds that can be converted into equity or attaching warrants that give the bondholder the right to buy a certain number of shares at a pre-agreed price and future date

Answer 28

- gives the holder the right, but not obligation, to convert the bond into predetermined number of ordinary shares - conversion opportunity is open for defined window - give holder saftey net of the bond with potential growth potential of equity - convertible bonds count as deferred shares so issuer must assume they will be converted - pay a lower coupon than conventional bonds - subordinated debt instruments - sometimes require holder to provide extra capital to convert - complex to value

Answer 29

1. Advantages to Issuer include: - No immediate dilution to current shareholders at time of issue - Lower coupon than conventional bond - Suitable when assets not available to be secured against - Suitable for finance periods with long payback periods - Once converted, no longer need to pay coupon 2. Disadvantages to Issuer: - If company performs poorly, still have to pay coupon - Can't be certain they are issuing deferred share capital (could have to pay back amount borrowed)

Answer 30

1. Advantages to Holder: - security of fixed income asset, offering downside protection, with potential to participate in share growth - convertibles rank above shares in event of liquidation - offer higher yields than shares - very marketable - receive a regular coupon 2. Disadvantages to Holder: - dilution may reduce value of existing investor's shares and their proportional ownership - offer lower yields than equivalent straight bonds - attractiveness of convertible could be tainted by issuer call options - if anticipated share growth not achieved, holder will have sacrificed yield for no benefit - if not converted, sacraficed lower yield for no benefit

Answer 31

- Shows number of shares that each £100 nominal of the bond can convert to **Conversion Ratio = nominal value / conversion price of shares** - Conversion Price - shows price shares will need to reach to make you want to convert you bonds and is = convertible price / conversion ratio - Conversion Value - shows what your shares would be worth if you converted today and is = current share price x conversion ratio - Conversion Premium - shows how much more expensive to buy shares through converting bond than buying in open market and = conversion price - share price / share price

Answer 32

- Conversion is contingent upon another event occuring such as solvency ratios dipping below a certain level (conversion would help the solvency ratio), rather than convertible at choice of investor - Most common type of convertible bond that converts to equity - Riskiest bond in capital structure so investors require higher return - Principal write-down CoCos are where investors contractually agree to absorb losses through cancellation of their entitlements - Commonly used by banks who need to issue set level of tier one capital (such as shares). So if ratio falls below solvency ratio, they will automatically convert these to equity to bring ratio back up - As investor, do not want conversion to happen as usually happens in times of stress

Answer 33

- Entitle hodler to a certain number of shares in the issuer at a pre-defined price - Coupon often lower than conventional bonds - Like a call option to buy shares in the issuer

Answer 34

- Most common method of issuance is a placement - Issuer awards mandate to lead manager - Lead manager then obligated to issue bond and ensure issue is taken up - In normal issues, lead manager can amend the terms of the issue (coupon and maturity) depending on market conditions - A bought deal is where lead manager purchases the entire issue, which transfers the risk of not being able to sell from the issuer to the lead manager - Lead manager can create group called a Syndication which includes other banks and each receives a portion of the deal

Answer 35

- Most bonds have definitie schedules of cash flow values with precise timings so suited to application of discount cash flow technique - To calculate price, find the present value of the coupons, then add to the present value of the redemption value using annuity formula: **PV of coupons = A/r x (1 - 1/(1+r)^n)** - inverse relationship between bond prices and interest rates (as interest rates rise, bond prices fall which pushes up yield) - when coupon rate on the bond is equal to the prevailing interest rate, the bond will be valued at par

Answer 36

- For semi-annual coupons, use the same annuity discount formula, but we must halve the copon, halve the yield and double the number of periods

Answer 37

- No PV for the principal as no redemption date - **PV = C / r**

Answer 38

**PV = P / (1+r)^n**

Answer 39

- Calculate the real yield, given nominal yield and inflation (real yield = nom yield/ inflation - 1) - Discount each cash flow by the real yield and sum to get the real price using annuity formula - Multiply the real price by the index ratio

Answer 40

- Bonds quoted on clean price but settle on the dirty price - When a bond is purchased between interest payments, a payment is made to seller to compensate the seller for interest that built up but wasn't paid out (accrued interest) - Dirty price will rise as coupon builds then fall back as stock market ex-dividend - Where the purchase is cum-dividend: **Dirty price = clean price + accrued interest where accrued interest = coupon x (accrued days/days in period)** - Where the purchase is ex-dividend, seller receives all the dividend so pays some back to the purchaser: Dirty price = clean price - accrued interest

Answer 41

**% = annual coupon rate / market price x 100** - only considers coupon and ignores any capital gain/loss - best suited to short term investors who are focused on income (or irredeemable bonds), rather than those holding to maturity - ignores redemption flows - ignores timing of cash flows and time value of money - can't account for non-constant returns (such as inflation linked bonds)

Answer 42

- overcomes issue of flat yield in that doesn't ignore capital gains or losses - uses flat yield, then adds average annual capital gain/loss to redemption: - **= coupon + [(100-clean price)/no. of years to redemption] / clean price x 100** - provides more complete picture of return - ignores timing of cash flows and time value of money - assumes linear capital growth rather than compounded, which leads to overstament of capital gain/loss

Answer 43

- accounts for coupons and gains through to maturity - useful for non-taxpaying, long term investors (gross) such as pension funds - Calculated by finding the IRR of the bond's cash flows: 1. Calculate Japanese GRY to find indication of yield 2. Find Net Present Value of bond (using annuity calculation) at yield below Japanese GRY (R1), (N1 is then price of bond at R1 - actual price of bond) 3. Find Net Present Value of bond (using annuity calculation) at yield above Japanese GRY (R2), (N2 is then price of bond at R2 - actual price of bond) 4. Calculate GRY by interpolation: **R1 + (N1/N1-N2) x (R2-R1)** - considers all cash flow returns and their timing - assumes interest rates will remain constant throughout lifetime of bond, and therefore copouns will be reinvested at the same rate - will overstate return if bond not held to maturity

Answer 44

- similar to GRY but considers after-tax cash flows so useful for tax paying investors - To calculate, take JGRY and multiply by 100 minus tax rate) - **flat yield x (100 - tax rate)% + [(100-clean price)/no of years to redemption] / clean price x 100** - or use interpolation method as with GRY but multiply coupon by 100 minus tax rate - accounts for all cash returns and their tax implications - only represents the net return that will be realised if interest rates remain stable

Answer 45

- shows equivalent gross yield would be for a taxpayer who receives the net yield after paying income tax - **NRY / (1 - tax rate)** - allows comparions on taxable and tax-exempt investments on like for like basis helping investors to decide if gross coupon is still worthwhile after tax - supports portfolio decisions for investors in higher tax brackets - assumes investors tax rate remains constant - ignores impact of CGT on redemption - assumes all income taxed at same marginal rate

Answer 46

**FRN price = (next coupon + 100) / (1+r)^n** - can also work backwards on the above to get the yield

Answer 47

- Method: 1. Divide by the index ratio to arrive at the real price 2. Use interpolation method to calculate the real GRY using the real price 3. Find the nominal yield using the Fisher relationship: (1+r) = (1+i) + (1+R)

Answer 48

1. Find real yield given fisher equation (1+nominal interest) = (1+real interest) x (1+inflation) 2. Find real price given real yield 3. Multiply by index ratio to get inflation adjusted price

Answer 49

- shows relationships between bond yields and their maturities - the shape indicates the market expectation of interest rates - normally the curve is upward sloping i.e. the longer dated securities typically have higher yields as they are more risky - inverted yield curve indicates low confidence amongst investors about the state of the economy. Can also indicate a recession. Cutting interest rates may be considered to boost spending - flat curve can suggest investors expect little change or are unsure on future path in interest rates - supply and demand influences supply curve - You will sometimes see the curve flatten off at the end - likely due to demand from pension companies

Answer 50

- Explanation that interest rates derive from theories of supply and demand - stated by Keynes - Investors prefer liquidity so need to be compensated for holding less liquid securities, therefore higher yield on longer dated - Investors want liquidity for one of three reasons: 1. Transactions motive - need liquidity for investment opportunities 2. Precautionary motive - need liquidity for emergency expenses 3. Speculative motive - in case any speculative opportunities - Demand for money reflects a preference to hold it to remain liquid - Spot rates are core focus of market participants seeking best trade off between liquidity and return - This explains yield curve as normal, upward sloping

Answer 51

- States shape of yield curve will vary according to investors expectations of future interest rates and inflation - If believe interest rates will rise, will sell long dated bonds and buy short dated as investors will be able to secure higher rates in future - This causes price on longer dated bonds to fall, causing yield to rise - This explains normal yield curve - If you belive interest rates will fall, will buy longer dated bonds, and sell shorter dated nonds. - This causes price on longer dated bonds to rise, causing yield to fall - This explains inverted yield curve - Flat = expectation interest rates won't change - Steepness of curve reflects expected rate of change - Yield curve is reflection of spot rates and spot rates in turn a reflection of market expectation of forward rates

Answer 52

- Suggests different categories of investor who are interested in different segments of the maturity spectrum - Typically banks more interested in short term, while pension funds more interested in long term - This theory explains tendancy for 'wiggle' in the middle of the curve as the two ends of the curve react to different sets of business data - This gives rise to two markets concentrated at opposite ends of yield curve, where prices are driven up, and yields fall

Answer 53

- stock availability at certain maturities could lead to excess or shortage of stock, and therefore an irregular yield - often more of a problem at the longer end - some argue QE (where central banks buy back govt bonds), have muddied yield curve predictive powers as purchase was often of the longer dated bonds, reducing the supply, raising the price and therefore reducing the yield, making the curve flatter

Answer 54

- Likely that actual shape of the yield curve is influenced by liquidity preference, market expectation and preferred habitat theory in sense that short term dominated by expectations of future interest rates, whilst medium/long term more influenced by expectations of inflation and the liquidity premium - From theoretical point of view, upward-sloping curve suggests spot rate lies above it, and forward rate lies above that

Answer 55

- Rate of interest that can be locked in today, for a deposit or borrowing that will settle on a set date in the future - 1F2 means 1 year rate that starts in 1 years time - Need to know spot rate before calculating which is what we expect the interest rates to be - Banks will calculate the forward rate using the no arbritage method - this means there should be no difference between investing the money for two years, and then investing the money for one year and agreeing now to roll the money over into another one year deposit - Calcualting 1F2 given spot rate for year 1 (r1) and year 2 (r2): (1+1F2) = (1+r2)^2 / (1+r1)^1

Answer 56

- Rate of interest that applies today to some point in future - Not the same as yield - Rate of interest that can be agreed for a deposit or borrowing from today for a fixed period - To calculate, use simple discount formula on each of the seperate cash flows (i.e. a 2 year 4% bond can be broken down into 2 cash flows, £4 after 1 year and £104 after 2 years: = coupon /(1+r)^n

Answer 57

- Derive the cash flows in order of maturity using following discount formula, as you will need to use the prevuous spot rate as the next r value: = (coupon + redemption value) / (1+r1)

Answer 58

- spot rates are the geometric mean of the forward rates so can be derived from each other - E.g. two year spot rate equals current eone year rate multiplied by one year rate in one years time - (1+1F2) = (1+r2)^2 / (1+r1)^1 - the yield, which is a weighted average of the spot rates, exhibits less volatility than the spot rates and far less than the forward rates -

Answer 59

- spot rate is geometric mean of the forward rate and their movements relatively lag behind those of forward rates

Answer 60

- Rise in interest rates will push price of existing bonds down - Most important risk due to relationship between interest rates and bond prices - Duration and modified duration (volatility) is way of measuring this risk - Interest rate reinvestment risk can be mitigated by matching Macaulay Duration of the bond with term of the investors liability

Answer 61

- Risk that future value of an investment will be reduced by unanticipated inflation - Can be mitigated with inflation linked bonds

Answer 62

- Risk that the issuer defaults on its obligation to pay coupons or repay the principal - Ratings assigned by companies such as Fitch are intended to help assess this risk - Can be mitigated by investings into more highly rated bonds, however you will then receive a reduced yield

Answer 63

- Risk that the bond will not be easily sellable in the market - Smaller issues more subject to this risk

Answer 64

- Risk arises when converting cash flows received from overseas investments denominated in foreign currencies, back into the domestic currency of the investor

Answer 65

- Can arise from factors specific to individual bond issue such as issuer options like the right to call for early redemption

Answer 66

- Risk that withholding taxes will increase

Answer 67

1. Interest Rates - Longer dated bonds more sensitive to interest rate variations 2. Maturity - Longer dated bonds more exposed to movements of the GRY, as it has longer to maturity 3. Coupon - Lower coupon bonds demonstrate greater sensitivity to yields

Answer 68

- This is the economic life of a bond i.e. how long (in years) it takes for the cost of a bond to be repaid by its cash flows - Measures the weighted average term to maturity (duration) of the cash flows from the bond - **= sumof(t x PVt) / Price** - To calculate in exam, create four headings (Period, Cash Flow, PV of Cash Flow, prev column x t). Then sum right hand column and divide by price (sum of third column) to find Macaulay Duration - Duration one of most useful ways of assessing the risk of holding a bond as the longer the duration, the longer the average maturity, and therefore the greater the sensitivity to interest rate changes - The sooner a bond's payments are made, the less sensitive it will be to interest rate fluctuations - Higher coupon = lower duration (less risky as quicker to get money back) - Longer to maturity = higher duration (more risky as more time to get money back) - Higher yield = lower duration (less risky as quicker to get cash back) - For ZCBs, the duration will always be equal to bonds time to maturity - For fixed coupon, the duration will always be shorter than time to maturity

Answer 69

**= - Macaulay Duration / (1+yield)** - Gives an approximation of how a bond's price in % will change for a 1% change in yield - Use negative number for modified duration due to inverse relationship between price and yield - A modified duration of 4% means if bond yields fall from 7% to 6%, the bonds price will rise by 4% - A higher modified duration is better if you think interest rates (yield) will fall - Linear measure that tends to overstate drop in bonds price but understate its rise - The difference between modified duration and the actual price is Convexity

Answer 70

- The relationship between bond prices and yields is not linear. Relationship is actually curved - Convexity is therefore a measure of the curvature in the relationship between bond prices and bond yields that demonstrate how the duration of a bond changes as interest rates change - A bond with a higher convexity will always have a higher price whether interest rates rise or fall (all other things being equal), so you'd always want to own this bond (price would rise more if yields fell 1%, and fall less if yields rose 1%) - As convexity increases, systemic risk of portfolio increases (this isn't true but included in textbook) - In exam, add extra column to table for Macauly Duration, where you times the (Pv x t) value by (t+1), also draw diagram showing modified duration as a straight line, then two curved lines showing the convexity of bond A and B - The difference between modified duration and the actual price is the convexity error which can be estimated with the convexity adjustment: = 0.5 x Convexity x Yield Change^2 x Bond Price - Higher number means greater degree of curvature - Callable bonds have a negative convexity as modified duration falls as yields fall

Answer 71

- Represents how much the actual price of a bond will change if the yield changes by 1 basis points so a finer measure of sensitivity than modified duration - Also known as price value of a basis point - **= Modified Duration x (Bond Price / 10,000)** - e.g. if interest rates move by 1bp, and BPV is 0.04, you would gain/lose 4p for every £100 nominal owned

Chapter 4 - Bonds Flashcards

(95 cards)