Bonds and Bond Derivatives, Second Edition

CONTENTS

Preface

Acknowledgements

Introduction

Growth of Debt

Increased Variability of Interest Rates

New Varieties of Debt

Plan of the Book

1 Determinants of the Level of Interest Rates

Federal Reserve

Foreign Central Banks

Loanable Funds Approach

Inflation and Interest Rates

Summary

Questions and Problems

2 Issuers

The US Treasury

Index-Linked Bonds

Government-Sponsored Enterprises

Municipal Securities

Mortgages

Corporations

Summary

Questions and Problems

3 Financial Intermediaries

Initial Sale of Securities (Primary Market)

Dealers and Brokers (Secondary Market)

Mutual Funds

Insurance Companies

Pension Funds

Commercial Banks and Thrifts

Comparing Types of Debt Financing

Summary

Questions and Problems

4 Time Values

A Time Line

Future Value

Present Value

Finding Future Value from Present Value

Price of a Bond

Bond Yield to Maturity

Other Yield Measures

Perpetual Bonds

Holding Period Returns

Semiannual Interest

Accrued Interest

Newspaper and Internet Quotes

Summary

Notes

Questions and Problems

Appendix

5 Money Market Instruments and Rates

Money Market Instruments

Money Market Rates

Summary

Questions and Problems

6 The Risk of Changing Interest Rates

Duration

Immunization at a Horizon Date

Immunizing Assets and Liabilities

Summary

Note

Questions and Problems

Appendix

7 Time Value with Nonflat Term Structure

Spot Interest Rates

Present Values or Spot Prices

Treasury Strips

Forward Interest Rates

Shape of the Term Structure

Annuities

Prices of Coupon-Bearing Bonds

Yield to Maturity ...