The Term Structure of Interest Rates参考.ppt

CHAPTER 15 The Term Structure of Interest Rates CHAPTER 16 Managing Bond Portfolios Table 16.5 Market Value Balance Sheet Figure 16.9 Growth of Invested Funds Figure 16.10 Immunization Cash Flow Matching and Dedication Cash flow matching = automatic immunization. Cash flow matching is a dedication strategy. Not widely used because of constraints associated with bond choices. Substitution swap Intermarket swap Rate anticipation swap Pure yield pickup Tax swap Active Management: Swapping Strategies Horizon Analysis Select a particular holding period and predict the yield curve at end of period. Given a bond’s time to maturity at the end of the holding period, its yield can be read from the predicted yield curve and the end-of-period price can be calculated. Bond prices and yields are inversely related. An increase in a bond’s yield to maturity results in a smaller price change than a decrease of equal magnitude. Long-term bonds tend to be more price sensitive than short-term bonds. Bond Pricing Relationships As maturity increases, price sensitivity increases at a decreasing rate. Interest rate risk is inversely related to the bond’s coupon rate. Price sensitivity is inversely related to the yield to maturity at which the bond is selling. Bond Pricing Relationships Figure 16.1 Change in Bond Price as a Function of Change in Yield to Maturity Table 16.1 Prices of 8% Coupon Bond (Coupons Paid Semiannually) Table 16.2 Prices of Zero-Coupon Bond (Semiannually Compounding) A measure of the effective maturity of a bond The weighted average of the times until each payment is received, with the weights proportional to the present value of the payment Duration is shorter than maturity for all bonds except zero coupon bonds. Duration is equal to maturity for zero coupon bonds. Duration Duration: Calculation CFt=cash flow at time t Price change is proportional to duration and not to maturity D* = modified duration Duration/Price Relationship Example 16.1 Duration Two bo