Securities Investment 101

In this lecture we explain what a convertible bond is, why they are issued, who issues them, how generally speculative they are, and what the terms are about used to describe them. These terms include conversion ratio, conversion value, conversion percentage, conversion premium, and so on.

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In this final one of our bond duration and convexity lectures, we apply the lessons learned in the previous lecture to start calculating convexity and using it to make more accurate price predictions for bond price changes, whenever interest rates change.

The full YouTube playlist of Securities Investment 101 lecture videos can be found by clicking here.

Please read our disclaimer.

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Calculating Convexity, Lecture 025, Securities Investment 101

December 18, 2013

In this lecture we calculate the convexity for an annual-paying bond. We do it first by building up an Excel grid, showing how each element of convexity is calculated. Because Excel (rather strangely) does not have its own built-in CONVEXITY function (similar to DURATION or MDURATION), we also cover how to build your own personal […]

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Explaining Convexity, Lecture 024, Securities Investment 101

December 7, 2013

In a non-mathematical way, and before our next lecture on actually calculating convexity, we try to explain why convexity has to be taken into account, particularly for large interest rate moves in either direction. At the limit, interest rates moving down have a proportionally larger and larger effect on bond prices. Similarly, interest rates moving […]

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Modified Duration, Lecture 023, Securities Investment 101

December 5, 2013

We conclude our lectures on ‘Duration’, before we move on to ‘Convexity’, with an explanation of ‘Modified Duration’ and its importance in predicting how individual bond prices will change on specific interest rate changes. In passing, we cover the ‘MDURATION’ Excel function, and also dabble a little in different coupon payment frequencies, such as Annual, […]

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The Importance of Macaulay’s Duration, Lecture 022, Securities Investment 101

November 29, 2013

In this lecture we discuss the importance of Macaulay’s Duration, particularly to anyone holding large bond portfolios. In passing, we show how and why zero coupon bonds have a duration identical to their maturities, and why the anticipated directional moves of interest rates are so critical to bond traders and pension fund managers. We also […]

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Calculating Duration, Lecture 021, Securities Investment 101

November 25, 2013

Before we delve deeper into the mysteries of duration and convexity, now is a good opportunity to actually calculate duration, at least in its form as an average weighted cashflow period, known as Macaulay’s Duration. We do this both the long way, from first principles, and by using Excel’s built-in ‘DURATION’ command. Previous video, Securities […]

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Introducing Duration, Lecture 020, Securities Investment 101

November 22, 2013

In the first of a series of videos, we begin to delve into the complex subjects of bond duration and bond convexity. This first lecture begins to introduce the topic of duration and why we need it to anticipate bond price changes after expected (or unexpected) changes in required market interest rates. Previous video, Money […]

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Money Market Yields, Lecture 019, Securities Investment 101

July 4, 2013

The money markets are concerned with very liquid securities investment products based upon cash-flows, with usually less than one year to maturity and without associated coupons. Typical investment products include government treasury bills, certificates of deposit, commercial paper, and short-term zero-coupon bonds. Although investment yields are often lower than long-term bonds and other equity-based investments, […]

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Inter Bank Offer Rates, Lecture 018, Securities Investment 101

July 1, 2013

In this lecture we discuss what inter-bank offer rates are, where they originated, and how they are typically calculated on a daily business-day basis. Although providing a ‘generic’ description of how they work, and mentioning several of the major international alternatives, we also provide information on one of the major inter-bank offer rates (as of […]

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