Fixed Income Securities

1

Part-04A

The Money Market

2

Introduction

3

Debt Markets

Money markets are a key segment of the debt market

Why do we have debt markets? So that those in need of funds can interact with

those who have a surplus

4

Introduction

All debt markets have a common feature On one hand we have

parties ready to borrow by issuing securities

On the other hand we have parties willing to lend in the process of acquiring securities

5

All security for cash transactions are not identical A 30 year mortgage loan vs. 3 month loan to meet a corporations working capital

needs

Introduction

Purpose of borrowing

The purpose for which money is borrowed differs from

borrower-to-borrower

transaction-to-transaction 1. A corporation may issue long term bonds to

finance the construction of a building

2. It may issue short-term promissory notes to fund the acquisition of raw materials.

6

Introduction

Types of financial assets

Money is borrowed to create different

kinds of financial assets with

different maturities

different risk profiles

different size

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Introduction

Term to maturity

Loans in the money market have an original term to maturity of

Money Markets Money market securities have to be debt

securities Since equity shares have no maturity date.

Money market consists of transactions to meet short-term cash needs Meant for current account, not for capital account

It is a mechanism by which holders of temporary cash surpluses interact with those with temporary cash deficits The nature of transactions range from overnight to

1 year 9

Introduction

Why?

Why do we need money markets?

For most individuals / institutions inflows &

outflows of cash will rarely match.

Inflows may happen at a time different from

when outflows are required to be met

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Introduction

Why the attention?

Why are we so concerned about short-term transactions? Money is an extremely perishable commodity

When idle cash is not invested there is an opportunity cost - interest income is foregone

Income that is lost is lost forever

When large amounts are involved, the lost income even a day can be substantial

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Introduction

Example A firm has 12MM dollars available overnight. Assume interest rate @ 3.60% p.a. Assume the year has 360 days

A common assumption in many money markets If money is kept idle overnight the lost income

will be: 12,000,000 x 0.036 x (1/360) = $1,200

If the money were to remain idle for a week the income foregone will be $8,400 12

Introduction

Analogies

We can give similar examples from the travel and hotel industries If the New York Hilton has 20 unoccupied rooms

on a day the revenue is lost forever You cannot put two guests in a room on a subsequent

night If British Airways were to fly from New York to

London with 10 empty seats The income is lost forever

We cannot put 2 people per seat on a subsequent flight

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Borrowers & Lenders

It is very difficult to classify an economic entity as a borrower or a lender. The same institutions frequently operate on both

sides of the market E.g. Citibank

Borrower Lender

It will borrow regularly in the money market by way of Certificates of Deposit, borrowings of Federal Funds etc.

At the same time it will be making short term loans to corporate borrowers

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Introduction

What do investors want?

Investors in the market primarily seek

Safety and liquidity

An opportunity to earn some extra income

Liquidity is paramount because participants

may seek to enter and exit in an unanticipated

fashion.

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Introduction

Liquidity

A liquid market is characterized by a large number of buyers and sellers

What would happen if the market were to be illiquid? If there is excess demand large buy orders will

send prices shooting up If there is excess supply large sell orders will

send prices crashing down.

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Introduction

Liquid market In a liquid market large trades can be

executed without a major price impact Liquid markets are characterized by low bid-ask

spreads Since transactions are frequent dealers can

afford to operate with a smaller profit per round trip transaction Bid the price at which the dealer buys from

the public Ask the price at which the dealer sells to the

public Round trip a purchase followed by a

subsequent sale

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Introduction

Liquidity & Impact Costs

Let us define the fair price of a security as a simple average of the bid and the ask

If the market is very liquid Large orders on both sides can be executed at an

average price that is close to the fair price

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Impact Costs (Cont)

The impact cost of a trade is the percentage mark up for an order of a certain size, with respect to the fair price The cost depends on whether we are buying or

selling It also depends on the size of the transaction

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Impact Costs (Cont)

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Example

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The spread is Rs 2.00 The fair price is Rs 99 Niharika issues a buy order for 1,000 shares

It will get executed at prices ranging from 100.00 to 102.25.

The weighted average price is:

Example (Cont)

The impact cost may be computed as: (Weighted Average Trade Price Fair Price)

Fair Price

In this case it is: (101.47 99.00) _________________ x 100 = 2.49% 99.00

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Example

23

Consider the same Limit Order Book Mukul places a sell order for 1,000 shares

It will be executed at prices ranging from 98.00 to 95.45.

The weighted average price is:

Example (Cont)

The impact cost may be computed as: (Fair Price Weighted Average Trade Price)

Fair Price In this case it is: 99.00 96.245 _________________ x 100 = 2.78% 99.00

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Example

25

Assume that Niharika observes the LOB and issues a buy order for 2,000 shares It will be executed at prices ranging from 100.00

to 104.50. The weighted average price is:

Example (Cont)

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The impact cost is:

Central Banks The market is overseen by the Federal Reserve Bank in the

U.S. and by the central banks of other countries. These are: U.K. Bank of England

Canada The Bank of Canada

Switzerland The Swiss National Bank

Japan Bank of Japan

Europe European central bank

Germany Bundesbank

Australia Reserve Bank of Australia

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Introduction

Features (Cont)

There is no central trading arena.

It is a market connected by telephones and

computers

Speed is of the essence since money is perishable.

Transactions are conducted in a matter of seconds

and payments are made instantaneously

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Introduction

Global Money Markets

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National / Intl. Money Markets

Every nation has its own money market

Some are poorly developed.

Others like that of the U.S extend beyond the

borders of a country or a continent.

National money markets may be

Security markets dominated

Bank dominated 30

Global Money Mkts

Types of National Money Markets Securities dominated market most

transactions are through open market trading of financial instruments. Western markets are largely securities dominated.

Bank dominated market bank borrowing and lending is at the centre of most transactions. Asian markets tend to be largely bank dominated. These markets have a potential weakness - they

yield more easily to government pressures resulting in bad loans

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Global Money Mkts

International Money Markets

International money market ties all domestic

markets together.

At its heart is the Eurocurrency market.

Here large bank deposits are traded outside the

boundaries of the country where the particular

currency is issued.

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Global Money Mkts

Key Dates in Cash Market Instruments

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Key Dates

Transaction date

Value date

Maturity Date

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Key Dates

Transaction Date

Date on which terms and conditions of a

financial instrument are agreed upon

Date on which parties enter into a contract

Also known as Trade date, Dealing date, Done

date

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Key Dates

Value Date

Date on which instrument starts to earn or

accrue a return

This date may/may not be same as transaction

date

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Key Dates

Types of Value Dates

Value Date

Same Day Value Or

Value Today

Next Day Value Or

Value Tomorrow Spot Value

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Key Dates

Value Date = Transaction Date

Value Date = Transaction Date + 1

Value Date = Transaction Date + 2

Maturity Date

The date on which the instrument ceases to accrue a return

Maturity date is often not a date It is a term to maturity which is a whole number of

weeks/months after the value date

Date of maturity follows two conventions The Modified Following Business Day Convention

The End/End Rule

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Key Dates

The Modified Following Business Day Convention

This convention consists of the following three rules 1. Maturity is set for the same date as the value

date If the value date is 21 March

The one month maturity will be 21 April The two month maturity will be 21 May

2. If the maturity as per rule 1 is a non-business day, then it is moved to the following business day

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Modified(Cont)

3. If the following business day according to rule 2 falls in the next calendar month

Then the maturity date is moved back to the last business day of the calendar month.

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Illustration

Consider a 3-M deposit with a value date of 21 June 20XX

The maturity date should be 21 September 20XX

But if 21 September is a Sunday The maturity date will be Monday 22 September Assuming it is not a holiday

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Illustration-2

A 1-M deposit was made on 31 July 20XX The maturity date will be 31 August 20XX If 31 August is a Sunday

Then the maturity will be fixed for Friday 29 August

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The End/End Rule

If the value date is the last business day of the current calendar month Then the maturity date will be the last business

day of the relevant calendar month. Consider a one month deposit with a value

date of 31 May. It will mature on 30 June if it is a business day.

Consider a one month deposit with a value date of 30 June It will mature on 31 July if it is a business day

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The End/End Rule (Cont)

Consider a one month deposit with a value date of 31 January It will mature on 28 or 29 February

Consider a one month deposit with a value date of 28 or 29 February It will mature on 31 March

If the maturity date as per this rule were to be a holiday then The modified following business day convention

would apply.

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Interbank Market

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Interbank Market It is a market for large or wholesale loans

and deposits It is an arena for transactions between

commercial banks Borrowing / lending is for periods

Need for Interbank Market

All commercial banks are required to

maintain an account with the central bank

Banks with surplus lend to banks with

deficit

The lending bank earns some interest

The bank with a deficit covers its deficit

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Interbank Mkt

Types of Loans

1. Overnight money: Money lent on a given day

is scheduled to be repaid on next banking day

2. Day to Day money: The deposit is for an

unspecified time. Funds can be called back at

any time and will be repaid on same day

Also called money at call

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Interbank Mkt

Types of Loans

3. Notice money: Money lent with a short

notice of withdrawal

E.g. 2 days or 7 days notice

4. Fixed money: Money lent for a fixed period

E.g. 1 week or 1 month

5. Intra day money: Money lent and repaid on

same day 49

Interbank Mkt

LIBOR

LIBOR London Interbank Offer Rate

Rate at which bank with high credit rating is prepared to lend

to a similar bank

LIBOR is quoted for different tenors

Each bank quotes its own indicative LIBOR rate

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Interbank Mkt

ICE LIBOR

ICE Inter-Continental Exchange It is the most widely used benchmark for

short term interest rates ICE maintains a panel of banks

For the US Dollar there are 18 banks These banks submit rates which are then

combined

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Interbank Mkt

ICE LIBOR (Cont)

Banks are required to submit rates in answer to the following question: At what rate could you borrow funds, were you to do so

by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 A.M.

The LIBOR is computed using a trimmed arithmetic mean For the USD the top 4 and bottom 4 quotes are

excluded The remaining 10 are averaged

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ICE LIBOR is Provided for 5 Currencies

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USD GBP EUR JPY CHF

ICE LIBOR (Cont)

There are 7 different maturities for each currency

Shortest maturity is overnight O/N The maximum maturity is 12 months

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Quoting Panel for the USD

Bank of America Bank of Tokyo-Mitsubishi Barclays Bank BNP Paribas Citibank Credit Agricole Credit Suisse Deutsche Bank HSBC

JP Morgan Chase Lloyds Bank UBS Rabobank Royal Bank of Canada Norinchukin Societe Generale Sumitomo Mitsui Royal Bank of Scotland

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LIBID

LIBID London Interbank Bid Rate

It is rate at which a London bank with good

credit rating will pay on funds deposited with

it by another top rated bank

LIBID is quoted for different tenors

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Interbank Mkt

EURIBOR It is a benchmark rate used by international

market for the Euro Produced by European Banking Federation

Brussels Euribor is reported at 11 a.m. Brussels time

everday The rates are spot rates Interest is computed on Actual/360 basis Maturities are 1-w; 2-w; 1-m; 2-m; 3-m; 6-m;

9-m; 12-m

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Interbank Mkt

Interest Computation Methods

For inter-bank loans and some money market securities interest is paid on the principal value of the instrument It is paid at the end of the loan period along with the

principal However securities like T-bills and commercial

paper are discount securities They are issued at a discount to the principal and pay

the principal at maturity They are analogous to ZCBs

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Interest (Cont)

For inter-bank loans interest is computed and paid with the principal

The method of computation depends on the currency For most currencies including USD and EUR an

ACT/360 method is used For the GBP an ACT/365 convention is used The Indian market uses an ACT/365 convention

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Calculating Interest

Interest payable on assumption of a 360 day year

P x (r/100) x (T/360) P Principal T No. of days r Rate of interest

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Interbank Mkt

Illustration-1

A bank makes a loan of 10MM Euros from 15 July 15 October Interest rate is 5.75% per annum # of days = 16+31+30+15 = 92

Interest = 10,000,000x 5.75 x 92 ________ 100 x 360 = EUR 146,944.44

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Illustration-2

Bank makes a loan = $7.5 MM Period: 1 year (365 days) Interest rate = 5.25% p.a.

Interest = 7,500,000 x (5.25/100) x (365/360) = $ 399,218.75

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Interbank Mkt

Illustration-3

A bank makes a loan of GBP 7.5MM for 180 days at 4.95% per annum

Interest = 7,500,000x4.95x180 _________ 100x365 = GBP 183,082.19

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Fed Funds & Clearinghouse Funds

How do funds move so fast in the money market? Money market traders usually trade in Federal

Funds.

What are Federal Funds? Deposit balances of commercial banks held at

the regional Federal Reserve Banks or at large correspondent banks.

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Fed Funds

Federal Funds

They are the principal means of making

payments in the money market.

Definition The term Federal Funds refers to money that is available for immediate

payment.

Transferred from one depository institution to

another by simple book-keeping entries

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Fed Funds

Federal Funds (Cont)

Banks must keep a reserves equivalent to a certain percentage of their deposits Includes vault cash Reserves held at the Fed

An increase in deposits leads to a greater availability of funds

Increase in loans made and securities purchased leads to a depletion of funds

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Federal Funds (Cont)

Frequently some banks hold more legal reserves than what the law requires Excess reserves yield nil returns So banks with a surplus lend to those with a deficit

Most loans are overnight Availability of excess reserves varies on a daily basis

and in an unpredictable way The lending of such funds is termed a SALE The borrowing of such funds is termed as a PURCHASE

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Fed Funds loans features

Most Fed Funds loans are

Overnight transactions

Continuing contracts with no specific maturity date

Continuing contracts can be terminated without advance

notice by either party

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Fed Funds

Clearing House Funds

Method of payment in the capital markets for transactions involving businesses and households Most large transactions are paid for by check

or by issue of a check following a payment by a credit card

Funds transferred by check are called Clearinghouse Funds.

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Fed Funds

Funds availability

Clearinghouse funds are not accepted in money markets For money market transactions these transactions are far

too slow and risky

Federal Funds Clearinghouse funds

Money is available on same day and hence interest can be earned on the same

Compared to Federal Funds it takes at least a day to clear local checks and 2-3 days for outstation checks

Money is transferred safely Funds have an element of risk since check may be returned

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Fed Funds

Illustration of an Inter-State Payment

An IT firm in Chicago sells software worth $100,000 to a party in Boston It receives a check drawn on a Boston bank

It will deposit the check with its bank in Chicago The bank will send the check to the Chicago FED The Chicago FED will send the check to the

Boston FED The Boston FED will send it to the drawers bank

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Illustration (Cont)

The bank in Boston will debit the drawers account It will either remit the funds to the Boston FED Or else authorize it to debit its reserve account The Boston FED will transfer funds to the Chicago

FED The Chicago FED will credit the reserve account of

the drawees bank The drawees bank will credit the drawees

account

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Illustration (Cont)

The net result is the transfer of $100,000 from a party in Boston to a party in Chicago

Checks collected and cleared through the Federal Reserve system must be paid in full by the drawers bank No deduction of fees Payable at PAR But the drawees bank can levy collection charges

from the drawee

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Inter-District Fund Transfers

How do funds move from one Federal Reserve Bank to another

To facilitate transfers the 12 banks maintain a fund in Washington DC called The Inter-District Settlement Fund Each district bank has a share

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Correspondent Banks

It is a common practice for banks to maintain accounts with other banks Banks in small towns and cities have relationships

with larger banks in money centers

Foreign banks have accounts with banks in the US

Such relationships are referred to as correspondent banking relationships.

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Correspondent Banks (Cont)

The bank which maintains an account is called the RESPONDENT Bank

The bank offering the account maintenance facility is called the CORRESPONDENT Bank

Correspondent banks facilitate Check clearing and collection Foreign exchange transactions They also participate in loan syndication

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Correspondent Banks (Cont)

A NOSTRO is its account of its money being held by another bank

VOSTRO is its account of the money of another bank being held by it

Barclays is holding an account with Citibank in NYC Barclays would refer to is as its Nostro Citi would term it a Vostro account

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Correspondent Banks (Cont)

A nostro with a credit balance is an asset It will show up on the asset side of Barclays

balance sheet

From the perspective of the other bank a credit balance in a Vostro account is a liability

A Vostro with a debit balance would signify that a loan has been made It is consequently an asset

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Payment Systems

There are two networks for large value fund transfers in the US

One is Fedwire Funds Service Operated by the Federal Reserve It not only facilitates inter-bank payments but also

enables safekeeping and transfer of government and other securities

The other network is Clearing House Inter-bank Payments System (CHIPS)

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FEDWIRE

Fedwire is an RTGS It facilitates transfers between two institutions on

a real time and gross basis It is the fastest possible channel for transfers of

money through the banking system

Real time means that there is no waiting period for the payee

Gross settlement means that it is settled on a one-on-one basis

Payments over Fedwire are final and irrevocable

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CHIPS

It is a privately owned real time payments system

It continuously matches nets and settles payment orders

To settle position on a real time basis CHIPS requires up to two rounds of pre-funding

All members have to maintain a pre-funded account with the New York Fed

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T-Bills

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Treasury Bills

Purchases / Sales of T-bills often represent the largest volume of daily transactions in the money market. Interest rates on such bills are the benchmark for

all other money market rates.

What are the important features of T-bills? a. Zero default risk b. Ready marketability c. High liquidity

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T-Bills

Regular Series Bills

Regular series bills are issued routinely every

week or month by way of competitive

auctions.

4-week, 3 and 6 month bills are issued every week

1 year bills are issued every month

Of the above maturities 6 month bills provide

the maximum revenue for the Treasury.

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T-Bills

Irregular Series Bills Irregular series bills are issued only when

the Treasury has a special need Cash management bills are issued when the

Treasury has a special need for funds They have maturities ranging from a few days

to as long as 6 months They offer flexibility for they can be issued as

and when required

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T-Bills

On / Off the run securities

On the run securities Off the run securities

Newly issued securities for

a given maturity

Securities for the same

maturity that were issued

earlier

E.g. a 3 month bill issued

recently

E.g. a 2 year note issued

21 months ago

Have 3 months to maturity,

but are more liquid

Have 3 months to maturity

but are less liquid

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T-Bills

On-the-run bills more liquid

Why are on-the-run bills more liquid? For a short period after issue, securities tend to

be very actively traded

Thereafter, most securities pass into the hands of investors who are quite content to hold them till maturity.

Thus compared to on-the-run securities, off-the-run securities tend to be less liquid.

87

T-Bills

T-Bills selling process

T-bills are sold by an auction process. Prices and yields are determined by the market

and not by the Treasury.

The auction schedule for the coming year is announced in advance

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T-Bills

Competitive & Non-Competitive bids

The Treasury entertains 2 types of bids. Competitive bids typically are submitted by

large investors including banks and securities dealers.

Non-competitive bids submitted by small investors who agree to accept the price set at the auction.

The Treasury generally fills all non-competitive bids.

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T-Bills

Pricing at auctions

All prices are expressed on a $100 basis

The minimum denomination for bills is $100

And they are issued in multiples of $100

thereafter.

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T-Bills

Re-openings Every T-bill issue has a unique CUSIP number

Committee on Uniform Securities Identification Procedures

Some are however re-openings of existing issues Re-opened securities are given the same CUSIP

number If a cash management bill were to mature on the

same day as a regular bill, which is usually a Thursday, it is said to be ON-CYCLE In this case the CUSIP is the same For OFF-CYCLE bills the CUSIP number will be different

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Yields The quoted yield for T-bills is a discount

yield.

DR = Face Value Price 360 ________________ x _____ Face Value Tm

DR quoted discount rate Tm number of days till maturity

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T-Bills - Yields

Example 1

Assume that a T-bill with Face value = $100 90 days to maturity Selling price = $97.50

DR = 100 97.50 360 ____________ x _____ = 10% 100 90

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T-Bills - Yields

Example (Cont)

In the market the price will not be quoted

as 97.50

The dealer will quote the yields as 10%

An investor must use the yield to calculate the

price.

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T-Bills - Yields

Example Investment Rate Rate of return for an investor who buys a bill at a discount

rate of DR will always be higher than the quoted yield Investment rate IR = Face Value Price 365 ________________ x ____ Price Tm

= 100 97.50 365 ___________ x _______ = 10.40% 97.50 90

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T-Bills - Yields

Example (Cont)

A bill with 90 days to maturity has a face value of $1,000,000

The quoted yield is 4.80% D = $12,000 Price = $988,000

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Example (Cont)

A 364 day bill has been issued at a yield of 5.4%

D = $54,600 P - $945,400

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BEY

The Bond Equivalent Yield is also known as the Coupon Equivalent Yield

It facilitates comparisons with capital market debt instruments like coupon paying bonds

The method of computation depends on whether the security has more or less than 6M to maturity

98

Less than 6M

The BEY for a bill with less than 182 days to maturity is

The return on a simple interest basis assuming that the year has 365 days

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Less than 6M (Cont)

A bill has a face value of $1,000,000 It has 90 days to maturity Yield is 4.50% P = 988,125 BEY = 11,875/988,125 x (365/90) = 4.8738%

100

Less than 6M

The BEY can be converted to a Money market Yield by multiplying by 360/365

Face value = 1,000,000 Time = 90 days Discount rate = 4.75% Money Market Yield = 4.8071%

101

More than 6M

A coupon bond with more than 182 days to maturity will pay a coupon before maturing

To compare the yield on a T-bill with the YTM the bill must be treated as if it will pay interest after 6 months

That is interest is paid on the intermediate interest for the remaining term to maturity

102

More than 6M

103

More than 6M

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Holding Period Return

A bill is bought at a rate d1 with Tm1 days left to maturity

And sold at a rate d2 with Tm2 days left to maturity

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HPR (Cont)

106

HPR (Cont)

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HPR (Cont)

A bill with 180 days to maturity is bought at a yield of 6%

It is sold after 30 days at 5.80%

108

HPR (Cont)

109

Value of an 01

Participants want to know the price sensitivity of a security wrt yield

How much will the price change if the yield changes by 1bp

P01 = 0.0001xVxTm/360

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Value of an 01 (Cont)

A bill has 90 days to maturity It is quoting at 5% P01 = 0.0001x1,000,000x90/360 = $25

111

Carry

What is Carry `It is the interest income received on the

security being financed minus the interest expense incurred in financing the security

Carry may be positive or negative

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Tail

What is a tail. `calculating the yield at which a future money

market security is purchased when the future security is created by buying an

existing instrument and financing the initial portion of its life with a Term Repo

113

Tail (Cont)

A brokerage house is funding the purchase of a 108 day bill using a 45 day term repo

The quoted rate is 4.8% The repo rate is 4.56% The initial cost of the bill is $985,600 The funding cost is 985,600x0.0456x45/360 = 5,617.92 At the end of 45 days it will be holding a 63 day bill

114

Tail (Cont)

The cost of this bill is 985,600 + 5,617.92 = 991,217.92 The dollar discount is $8782.08 The corresponding discount rate is 5.0183% The transaction is attractive if the firm

believes that the 63 day bill can be sold 45 days later at a lower discount rate

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Fixed Income Securities Part-04AIntroductionDebt MarketsIntroduction Purpose of borrowingTypes of financial assetsTerm to maturityMoney MarketsWhy?Why the attention? ExampleAnalogiesBorrowers & LendersWhat do investors want?Liquidity Liquid marketLiquidity & Impact Costs Impact Costs (Cont)Impact Costs (Cont)ExampleExample (Cont)ExampleExample (Cont)ExampleExample (Cont)Central BanksFeatures (Cont)Global Money MarketsNational / Intl. Money MarketsTypes of National Money MarketsInternational Money MarketsKey Dates in Cash Market InstrumentsKey DatesTransaction DateValue DateTypes of Value DatesMaturity DateThe Modified Following Business Day ConventionModified(Cont)IllustrationIllustration-2The End/End RuleThe End/End Rule (Cont)Interbank MarketInterbank MarketNeed for Interbank MarketTypes of LoansTypes of LoansLIBORICE LIBORICE LIBOR (Cont)ICE LIBOR is Provided for 5 CurrenciesICE LIBOR (Cont)Quoting Panel for the USDLIBIDEURIBORInterest Computation MethodsInterest (Cont)Calculating InterestIllustration-1Illustration-2Illustration-3Fed Funds & Clearinghouse FundsFederal FundsFederal Funds (Cont)Federal Funds (Cont)Fed Funds loans featuresClearing House FundsFunds availabilityIllustration of an Inter-State Payment Illustration (Cont)Illustration (Cont)Inter-District Fund Transfers Correspondent BanksCorrespondent Banks (Cont)Correspondent Banks (Cont)Correspondent Banks (Cont)Payment SystemsFEDWIRECHIPST-BillsTreasury BillsRegular Series BillsIrregular Series BillsOn / Off the run securitiesOn-the-run bills more liquidT-Bills selling processCompetitive & Non-Competitive bidsPricing at auctionsRe-openingsYieldsExample 1Example (Cont)Example Investment RateExample (Cont)Example (Cont)BEYLess than 6MLess than 6M (Cont)Less than 6MMore than 6MMore than 6MMore than 6MHolding Period ReturnHPR (Cont)HPR (Cont)HPR (Cont)HPR (Cont)Value of an 01Value of an 01 (Cont)CarryTailTail (Cont)Tail (Cont)