“Many different maturities of bond prices tend to appreciate in value with falling rates, but the largest gainers are longer dated bonds, those with more than five years' maturity.”
“Many different maturities of bond prices tend to appreciate in value with falling rates, but the largest gainers are longer dated bonds, those with more than five years' maturity.”
Similaire à “Many different maturities of bond prices tend to appreciate in value with falling rates, but the largest gainers are longer dated bonds, those with more than five years' maturity.”
Similaire à “Many different maturities of bond prices tend to appreciate in value with falling rates, but the largest gainers are longer dated bonds, those with more than five years' maturity.” (20)
“Many different maturities of bond prices tend to appreciate in value with falling rates, but the largest gainers are longer dated bonds, those with more than five years' maturity.”
1. 1
“Many different maturities of bond prices tend to
appreciate in value with falling rates, but the largest
gainers are longer dated bonds, those with more
than five years' maturity.”
Statement
A
Presentation
on
3. BONDS
The indebted entity (issuer) issues a bond that states the
interest rate (coupon) that will be paid and when the loaned
funds (bond principal) are to be returned (maturity date).
Interest on bonds is usually paid every six months (semi-
annually) or annually.
4. Type of Bonds
Corporate Bonds
Convertible Bonds
Callable Bonds
Term Bonds
Amortized Bonds
Adjustment Bonds
Junk Bonds
Angel Bonds
There are many types of bond available in the market,
they all are tradable and non-tradable in secondary
market. These are:
7. INTEREST RATE V/S PRICE
Interest rates have adverse effect on prices if the
interest rates rise than the prices fall, but if the interest
rates fall than the prices rise.
8. Decrease in value with Raising
Rates
Financial Term Today One Year Later ↑
Market Interest Rate 3% 4%
Coupon Rate (semi-
annual payments)
3% 3%
Face Value 1,000 1,000
Maturity 10 years 9 years remaining
Price 1,000 925
Yield to Maturity 3% 4%
Higher market interest rates Lower fixed-rate bond prices Higher fixed-rate bond yield
9. Appreciate in value with falling
Rates
Financial Term Today One Year Later ↓
Market Interest Rate 3% 2%
Coupon Rate (semi-
annual payments)
3% 3%
Face Value 1,000 1,000
Maturity 10 years 9 years remaining
Price 1,000 1,082
Yield to Maturity 3% 2%
Lower market interest rates Higher fixed-rate bond prices Lower fixed-rate bond yields
10. Maturity of Bonds
In
finance, maturity or
maturity date refers
to the final payment
date of a loan or
other financial
instrument, at which
point
the principal (and all
remaining interest)
is due to be paid.
11. Different Maturity bond
Appreciate in Bond Value
Illusion:
For two bonds X and Y having Face value of Rs. 1,000, coupon rate of 10% each,
years to maturity is 3 and 6 years respectively. If the market rate decrease to 8%.
At 10% coupon Rate :
Present Value of bond X (for 3 years maturity) : Rs. 1,000
Present Value of bond Y (for 6 years maturity) : Rs. 1,000
At 8% coupon Rate(market) :
Present Value of bond X (for 3 years maturity) : Rs. 1,051.55
Present Value of bond Y (for 6 years maturity) : Rs. 1,092.47
(This figure is calculated by Present value {PVIF} and Present Value Annuity{PVIFA})
12. Present Economic Situation
The present macroeconomic situation has tilted the scales
in their favour as interest rates appear all set to dip.
In September 2014, the consumer price inflation (CPI)
came in at a softer 6.46%, down from 7.7% in the preceding
month. RBI decrease the SLR from 22% to 21.5%.
The RBI has shifted its inflation-monitoring benchmark to
the CPI, with a target of 6% by January 2016 for this
indicator. Signs of lower inflation levels should see a cut in
the interest rate sooner or later.
13. Recommendation
in the present environment, investors would do well to add
duration to their bond fund holdings. Duration is in essence the
exposure of bond funds to longer maturity fixed-income instruments.
Lengthening the duration of their holdings in a bond fund improves the
prospects of a bond fund, and positions such holdings to benefit from
falling rates. So be Patience
14. Conclusion
Interest rates have adverse effect on prices if the
interest rates rise than the prices fall, but if the interest
rates fall than the prices rise so when the interest rate fall
at their maximum, we can earn extra profit by selling
those bonds. Because that time your bond rate are higher
than the current rate so they looks very attractive.
We can earn in both short term and long term
maturity bond but more in long term.
16. The Economic Times Article
BY : Mr. Nimesh Shah
(Managing Director & CEO of ICICI Prudential Mutual Fund)
Tags : long-term debt funds|ET Wealth
http://articles.economictimes.indiatimes.com/2014-11-
03/news/55720196_1_interest-rates-yields-policy-rates#
Book which referred :
ACCOUNTING FINANCE FOR BANKARS (2nd
EDITION)
Macmillan Publishers India ltd.
(S.K.Datta, P.S.R. Prasad and S.D. Bargir)
