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Financial Crises, Study Guide for Quiz 3

by: Kwan

Financial Crises, Study Guide for Quiz 3 BU.232.720.W4.SP16

Marketplace > Johns Hopkins University > Finance > BU.232.720.W4.SP16 > Financial Crises Study Guide for Quiz 3

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About this Document

Lecture 5 & 6
Fixed Income
Philip Giles
Study Guide
50 ?




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This 5 page Study Guide was uploaded by Kwan on Thursday February 18, 2016. The Study Guide belongs to BU.232.720.W4.SP16 at Johns Hopkins University taught by Philip Giles in Spring 2016. Since its upload, it has received 64 views. For similar materials see Fixed Income in Finance at Johns Hopkins University.


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Date Created: 02/18/16
Key Points V: •!the different types of corporate debt obligations: corporate bonds, medium-term notes, commercial paper, bank loans, convertible corporate bonds, and asset-backed securities •!the different credit classes in a corporation’s capital structure and the seniority of each in the case of bankruptcy •!major provisions of the U.S. bankruptcy law and the principle of absolute priority •!corporate bond ratings and what investment-grade bonds and noninvestment-grade- ▯ (or high-yield) bonds are •!provisions for paying off a bond issue prior to the stated maturity date •!bond structures that have been used in the high-yield bond market ▯ •!the secondary market for corporate bonds •!differences in trading activities between equities and corporate bonds •!the reasons for the reduction in dealer corporate bond inventory •!the private-placement market for corporate bonds •!medium-term notes and their features •!structured medium-term notes and various types of structured notes •!what commercial paper is and the difference between directly placed and dealer-placed commercial pape▯ •!what a bank loan is and the difference between an investment-grade bank loan and a leveraged bank lo▯n •!what a collateralized loan obli▯ation is •!corporate bond default risk, default rates, and ▯ecovery rates •!corporate bond downgrade risk and rating transition matrices •!corporate bond spread risk, event risk, and headline risk •!the drawbacks of the traditional yield spread analysis •!what static spread is and under what conditions it would differ from the traditional ▯ yield spread •!the disadvantages of a callable bond from the investor’s perspective •!the yield to worst and the pitfalls of the traditional approach to valuing callable bonds •!the price–yield relationship for a callable bond •!negative convexity and when a callable bond may exhibit it •!how the value of a bond with an embedded option can be decomposed •!the lattice method and how it is used to value a bond with an embedded option •!how a binomial interest-rate tree is constructed to be consistent with the prices for the ▯ on-the-run issues of an issuer and a given volatility assumption •!what an option-adjusted spread is and how it is calculated using the binomial method •!the limitations of using modified duration and standard convexity as a measure of the ▯ price sensitivity of a bond with an embedded option •!the difference between effective duration and modified duration •!how effective duration and effective convexity are calculated using the binomial method ▯ Key Points VI: •!what a futures contract is •!the differences between a futures contract and a forward contract •!the basic features of the two important short-term futures contracts: Eurodollar futures and EURIBOR futures •!the different types of Treasury futures contracts •!the cheapest-to-deliver issue for a Treasury bond futures contract and how it is ▯ determined •!how the theoretical price of a futures contract is determined •!how the theoretical price of a Treasury bond futures contract is affected by the delivery options▯ •!how futures contracts can be used in bond portfolio management: portfolio duration adjustment, yield enhancement, and hedging •!how to calculate the hedge ratio and the number of contracts to short when hedging ▯ with Treasury bond futures contracts •!what an interest-rate ▯wap is •!the relationship between an interest-rate swap and fo▯ward contracts •!how interest-rate swap terms are quoted i▯ the market •!how the swap rate is cal▯ulated •!how the value of a swap is de▯ermined •!how a swap can be used by institutiona▯ investors •!how a structured note is created using an int▯rest-rate swap •!what a swaption is and how it can be used by institu▯ional investors •!what a rate cap and floor are, and how these agreements can be used by institutional investor▯ •!the relationship between a cap and floor▯and options •!how to value caps and ▯loors •!how an interest-rate collar can ▯e created


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