Interest rates

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, Semi-Annual (S/A), and Quarterly.

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

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In this lecture we describe the inverted yield curve and how it differs from the normal yield curve.

Before we get to that, we explain the strategy of ‘riding the yield curve’ and then why the inverted yield curve is such a dangerous thing when riding the yield curve.

We explain why the inverted yield curve usually occurs, and why this makes it a good leading economic indicator for predicting near-term recessions.

Along the way, we also introduce Zero-Coupon bonds, which are bonds with a single principal maturity payment without any intervening coupon-interest payments.

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

Please read our disclaimer.

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The Yield Curve, Lecture 015, Securities Investment 101

June 17, 2013

In this lecture, we introduce the yield curve, which lies at the base of most cashflow trading. We explain liquidity preference theory, which determines the typical ‘standard’ shape of the yield curve, and how risk and reward, measured by credit risk and opportunity risk, create the standard yield curve. It must be noted, however, that […]

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Calculating Yield To Maturity from a Bond Price, Lecture 014, Securities Investment 101

June 14, 2013

We examine the theory behind how to calculate a required interest rate yield to maturity from a given bond price, then use three different methods in Excel to achieve the calculation. The methods used in Excel are the use of a scroller tied to an interest rate field, the built-in RATE() function, and the GoalSeek […]

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Pricing a Bond with Yield To Maturity, Lecture 013, Securities Investment 101

June 14, 2013

In this lecture, we price the same standard bond given three different ratings agency ratings, which has given us three different required overall yields to get from the bond, given the changing levels of risk. After explaining the theory of present valuing the different fixed cashflows, we then use an Excel spreadsheet to calculate the […]

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