Study Session 12: Fixed Income: Valuation Concepts
Does IR volatility and Price volatility have the same effect on value of call/put option and callable/putable bond?
I was going through Mock 2011 and I’m a little confused about Q # 16 from AM section.
Doesn’t the OAS compensate for Credit, Liquidity and Option Risk?
I know it’s the spread over the spot curve but I thought it compensated for all three of those risk factors.
For convertible bonds, I thought to get the conversion premium relative to the current stock price, you had to divide the MARKET price of the convertible bond by the conversion ratio. Instead in the question, they convert divide the PAR value of the bond by the conversion ration.
Can someone please explain what I am missing here? Thanks
When the question says: calculate “Pre-tax return on capital” what is the formula i should use:
EBIT/ (Short term debt + long term debt + share holder equity) ?
EBIT / (Long term debt + share holder equity) ?
The reason i ask is -
Total capital = Current Liablities + (Short term debt + long term debt + Total share holder equity)
and only “Capital” is excluding current liabilities which is (Short term debt + long term debt + Total share holder equity) ?
I am confused here. Can some one clarify.
Are we to assume an annnual coupon if nothing is specified in the example?
CFA Mock 2011 #11
They give you the following data (please excuse the formatting):
key rate, portfolio A, portfolio B, portfolio C
3m, .3, .2, .9
2yr, .4, .2, .9
5yr .3, 2.3, 1.1
10yr, 3.6, .3, .9
20yr, .5, .3, 1.0
30yr, .4, 2.3, .8
Some dude expects the yield curve to experience positive butterfly twist (i.e. Short-term and Long-term rates to increase)
I’ve come across a couple of questions regarding the shape of the YC under liquidity pref theory that got me a little confused. I’m hoping i’m not being stupid and not understanding the question…Why is one saying YC can be any shape and the other Upward Sloping?
Q1 What are the implications for the shape of the yield curve according to the liquidity theory? The yield curve:
must be upward sloping.
may have any shape.
is always flat
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