By Patrick J. Brown
This publication provides an advent to the bond markets for practitioners and new entrants who have to comprehend what they're, how they paintings and the way they are often used, yet don't need to be intimidated via mathematical formulae. by way of the tip of the ebook readers may be capable of make a decision even if to take a position within the bond industry. The mathematical formulae could be relegated to the appendices and supplemented via a better half site which permits clients to go into their very own bond industry investments, to simulate expected occasions and notice the implications.
- Patrick Brown is recognized as Chairman of the eu Bond fee (recently retired)
- The simply bond ebook that doesn't count seriously on mathematical formulae
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Extra resources for An introduction to the bond markets
25, where CPI equals the value of the US consumer price index for the month three months prior to the beginning of the interest period. The redemption amount will be similarly adjusted. 25 UK 2 12 % Index-Linked Treasury Stock 2024 This bond was originally issued in December 1986, but it has since had numerous additional tranches. It pays interest semi-annually on 17 January and 17 July. The interest and the capital repayments are linked to the UK Retail Price Index (RPI). 7, where RPI is the value for the month eight months prior to maturity.
The issuer wants to pay the semi-annual coupons on 15 April and on 15 October, the latter date to agree with the redemption date. The issuer has two options about when to pay the first coupon: after three months or after nine months. If the issuer elects to pay the first coupon on 15 April after the issue date, then this coupon payment will be about 2 %;1 alternatively, if it is delayed until 15 October it will be about 6 %. After the first coupon payment all subsequent payments will be 4 %. 1 The exact amount will be dependent on the accrued interest convention used by the issue.
3 ACCRUED INTEREST Unlike equity shares, bonds usually have well-defined future cash flows which are paid on specified dates, with the result that the market place makes allowance for how soon the next interest payment is going to be. Consider a bond which pays interest of 8 % of its nominal value on 1 May each year. Other things being equal, one would expect the price you would have to pay for the bond to increase up to 30 April each year, as the time before the next interest payment of 8 % progressively decreases.
An introduction to the bond markets by Patrick J. Brown