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Lecture 1: Course Intro & the BasicsDr. Eleanor Denny
Investment Analysis I
Introduction� Course outline
�Fixed Income Securities� Bonds, yields etc� Term structure interest rates� Managing bond portfolios
�Options and other derivatives� Options markets� Option valuation� Futures and Swaps
Resources� Bodie, Z., Kane, A., and Marcus
A.J. (2008), Investments, McGraw-Hill.
� Hull, J. (2008), “Options, Futures and other Derivatives”, Prentice Hall.
Lecture material� Slides vs blackboard
� WebCT
� Other resources�Reading material�Twitter: Investment3050
Course and Assessment� Two lectures per week
� Monday 5pm in McNeill3 in Hamilton Building� Wednesday 4050B (Arts building)
� Four tutorials in total � dates: 7 Oct, 21 Oct, 18 Nov, 9 Dec
� Quizzes/MCQs etc. � Guest lectures� One hand in exercise – 15% of final mark� Final exam – 70% of total
Me!� Office hours 11am – 1pm Mondays
�Outside office hours make an appointment
�Room 3016
The course in one sentence …
Investment analysis – sacrifice something of value now, expecting to benefit from that sacrifice later.
Course ContextAssets
Today’s lecture
� Fixed-Income securities i.e. Bonds
� ‘Investments’ chapter 14
Bonds
What is a bond?� IOU� Specified payments on specified dates� Coupon bond indenture
�Coupon payments
�Par (face) value�Maturity date
� Zero coupon bonds
Who issues bonds?� Governments� Companies� Local governments – municipal bonds� International bonds
�Foreign – yankee, samurai, bulldog
�Eurobonds, eurodollars, euroyen
http://www.ft.com/bonds&rates
Discount bond
Premium bond
Par
� The NTMA intends to issue €20 billion of Irish Government bonds in 2010.
� The bonds will be issued by means of eleven bond auctions to be held on the third Tuesday of each month, commencing on 19 January.
� In each auction, up to two bonds may be offered and the NTMA envisages auction sizes in the range of €1 billion to €1.5 billion.
14-01-2010
http://markets.ft.com/markets/bonds.asp
Other bonds� Other bonds
�Floaters and Inverse floaters
�Asset backed bonds�Catastrophe bonds
� Indexed bonds (TIPS)
� Call provisions� Convertible bonds� Puttable bonds
Bond pricing
� Formula
� What happens when r increases?
Bond prices & Interest rate� 8% coupon bond, 30yr maturity, semi-annual repayments
Quick Recap!� Bonds – IOU
�Coupon
�Maturity date�Par value
� Value (Price of Bond) is present value of future payments�Coupons + Par Value�Discount rate