From the book - While many varieties of debt instruments exist, all debt instruments are affected by macroeconomic factors determining the underlying interest rate. This chapter discusses macroeconomic factors affecting interest rates. The first part discusses the Federal Reserve and its impact on rates. Next, the loanable funds approach shows ... click here for more details.
From the book - This chapter discusses the issuers of securities in the United States, including the US Treasury, municipalities, corporations, US government and government-sponsored agencies, and mortgage issuers. The US Treasury issues debt to finance federal budget deficits. Given the large cumulative total of the deficits over time, the ... click here for more details.
From the book - Many financial intermediaries play an important role in the debt markets. Investment banking firms market debt securities on behalf of issuers. Dealers make markets in the resale (secondary) market. Brokers act as agents for buyers and sellers in the resale markets. Mutual funds, insurance companies, pension ... click here for more details.
From the book - Most securities involve cash flows at different points in time. To compare different securities, the cash flows on each security can be transformed into an equivalent value at the present time (i.e., present value) or at some future point in time (i.e., future value). Then, these ... click here for more details.
From the book - The most active market for securities as measured by daily volume of trading is the money market, which is defined as the market for securities with less than 1 year to maturity at the original issue date. Money market instruments include the following: Treasury bills, federal ... click here for more details.
From the book - The riskiness of bonds depends on an investor’s horizon. Investors with a long horizon are concerned with the value of their portfolio at some distinct date. For these long horizon investors, the reinvestment rate for coupons and the interest rate at their horizon date are fundamental. ... click here for more details.
From the book - The term structure of interest rates is the relationship between maturities (or term) and interest rates. Typically, longer-maturity debt has higher interest rates (a so-called rising yield curve), although the relationship between maturity and interest rates varies widely. In some cases, shortmaturity interest rates are higher ... click here for more details.
From the book - One of the most important concepts in finance is the concept of arbitrage, also called the law of one price. In frictionless markets, the same asset must have one price at a particular instant in time, no matter where it is traded. Arbitrage is clearest in ... click here for more details.
From the book - This chapter focuses on the reasons why interest rates differ by maturity, or term. A schedule of spot interest rates by maturity is called the term structure of interest rates. The term structure can be rising, flat, declining, or humped. The term structure is not directly ... click here for more details.
From the book - A bond represents a contractual agreement between an issuer, bondholders, and a trustee. The obligations of the parties are spelled out in the bond indenture, which contains protective covenants. Violation of this contractual agreement constitutes default. Bankruptcy is a legal proceeding, administered by special bankruptcy courts. ... click here for more details.