This category covers all kinds of topics in finance including corporate finance and financial management. The topics on financial institution and stock exchange will also be included.
Interest rate changes bring uncertainty to fixed-income instruments like bonds. Duration and Convexity are two concepts that help investors to quantify the uncertainty. Duration measures the sensitivity of the price of a bond due to a change in interest rate. Whereas convexity measures the change in yield and bond price due to a change in […]
Duration and Convexity – Measuring Interest Rate Risk Read More »
Portfolio immunization is a strategy that matches the duration of assets and liabilities to mitigate interest rate risks. Investors and businesses can use the immunization technique with different options to safeguard their net assets against interest rate risks. Portfolio immunization works well with fixed-income instruments such as bonds. That’s one reason portfolio managers prefer using
Portfolio Immunization Strategy: What Is It and How Does It Work? Read More »
Stock market indices are typically used to measure the performance of a particular stock market and with each component or segment benchmarking their performance against it. A capitalization-weighted index is a similar concept that accounts for each component of the index with respect to its market capitalization. Market capitalization (or simply market cap) is a
Capitalization-Weighted Index: What Is It and How to Calculate? Read More »
For investment instruments, asset backing means a security instrument whose value derives from a pool of assets. These assets are used as collateral or backing for the newly created security. Thus, asset-backed security (ABS) refers to a security that is backed by a pool of financial assets such as different types of loans. Asset-backed securities
Asset-Backed Security: What Is It and How Does It Work? Read More »
Bond convexity is the analysis of risk that arises with a change in the interest rate. Bond prices move inversely with a change in interest rate. The relationship between a bond price and interest rate is linear. However, the actual effects include several other factors resulting in a curvature. Convexity is used to assess the
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A callable bond also called a redeemable bond, can be called by the issuer before the maturity date. Most bonds issued are callable bonds by default. However, callable bonds come with an embedded call feature that investors are aware of. Bond issuers issue callable bonds in a high-interest rate market and expect to lower interest
What is a Callable Bond and How Does it Work? Read More »
STRIPS comes from the acronym of “Separate Trading of Registered Interest and Principal Securities”. Treasury notes and bonds can be stripped to repackage their interest and principal payments. Usually, a zero-coupon bond issued by the US treasury is termed as a STRIPS instrument. Institutional investors like pensions funds, banks, and corporations invest in US Treasuries
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Perpetual bonds are bonds that are issued with no maturity date. These bonds are also called “Perps” or “consol,”. As the name suggests, these bonds can work for perpetuity. Investors would receive coupon payments as long as they hold the investment in these bonds. These bonds present a fraction of the total bond market today.
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Foreign currency convertible bonds (FCCBs) are one type of debt instrument issued in a foreign currency other than the domestic currency of the bond issuer. These bonds are also convertible to equity at maturity or a specified date. FCCBs provide flexible capital financing options for bond issuers in a foreign market. Multi-national companies issue these
Foreign Currency Convertible Bond: What is It and How Does It Work? Read More »
Fixed-income instruments like bonds are directly prone to interest rate risks. Bond prices move inversely with interest rate movements. Thus, the investment portfolio of an investor or a company can be affected due to a change in interest rate changes. Duration matching is a strategy to counter interest rate risks. Investors can use the duration
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