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Risk Premium 1
 
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What is a risk premium? An introduction into what a bond is. Video by Chase DeHan, Assistant Professor of Finance at the University of South Carolina Upstate
Views: 12963 Harpett
Session 6: Estimating Hurdle Rates - Equity Risk Premiums - Historical & Survey
 
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Assess the historical and survey estimates of equity risk premiums as predictors of the future risk premium
Views: 36805 Aswath Damodaran
Session 4: Equity Risk Premiums
 
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Contrasts different approaches for estimating equity risk premiums in mature markets and extends these approaches to emerging markets and then to individual companies.
Views: 94853 Aswath Damodaran
Relationship between bond prices and interest rates | Finance & Capital Markets | Khan Academy
 
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Why bond prices move inversely to changes in interest rate. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/bonds-tutorial/v/treasury-bond-prices-and-yields?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/bonds-tutorial/v/introduction-to-the-yield-curve?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: Both corporations and governments can borrow money by selling bonds. This tutorial explains how this works and how bond prices relate to interest rates. In general, understanding this not only helps you with your own investing, but gives you a lens on the entire global economy. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 462966 Khan Academy
Session 6: Equity Risk Premiums
 
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We started this class by tying up the last loose ends with risk free rates: how to estimate the risk free rate in a currency where there is no default free entity issuing bonds in that currency and why risk free rates vary across currencies. The key lesson is that much as we would like to believe that riskfree rates are set by banks, they come from fundamentals - growth and inflation. I have a post on risk free rates that you might find of use: http://aswathdamodaran.blogspot.com/2017/01/january-2017-data-update-3-cracking.html The rest of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at three different ways of estimating the equity risk premium. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr17/session6.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6soln.pdf
Views: 6961 Aswath Damodaran
Understanding credit spread duration and its impact on bond prices
 
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M&G’s Mario Eisenegger explains the basic dynamics of credit spread duration, a measure of how sensitive a bond’s price is to movements in credit spreads The video highlights the two drivers of credit spread duration; the coupon and maturity. Using some examples, we look at how coupon size and maturity periods impact a bond’s sensitivity to changes in spreads Finally, credit risk and credit spread duration are often mistaken for the same thing. Mario clarifies the difference between them
Views: 1901 Bond Vigilantes
Session 6 (Undergraduate): Risk free Rates and Risk Premiums (Part 1)
 
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We started on the question of risk free rates and how to assess them in different currencies. In particular, we noted that government bonds are not always risk free and may have to be cleansed of default risk. The rest of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at two different ways of estimating the equity risk premium. 1. Survey Premiums: I had mentioned survey premiums in class and two in particular - one by Merrill of institutional investors and one of CFOs. You can find the Merrill survey on its research link (but you may be asked for a password). You can get the other surveys at the links below: CFO survey: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2422008 Analyst survey: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2450452 2. Historical Premiums: We also talked about historical risk premiums. To see the raw data on historical premiums on my site (and save yourself the price you would pay for Ibbotson's data...) go to updated data on my website: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/data.html Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfUGspr16/Session6.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6atest.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6asoln.pdf
Views: 4182 Aswath Damodaran
Why there's an "overwhelming" interest in corporate bonds
 
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There's not just a lot of interest in corporate bonds - there's an overwhelming interest in corporate bonds so far this year, according to Saxo Bank's Simon Fasdal.He explains a combination of very low inflation - which brings us very low core yields - and improvements in the eurozone economy "bring in fertile conditions for corporate bonds". The encouraging signs of better global growth means there are fewer risk factors, and lower risk premiums for investors.He adds that the light impact of the beginning tapering on core yields have surprised the market a bit, and we see some relief rally on the back of that.Meanwhile, he says that with the eurozone's record low core inflation of 0.7 percent, the biggest risk for the euro area is a potential Japanese style deflationary trap. He expects the ECB policy to be dovish when it meets on Thursday but that it will take action going forward, and this will be supportive for corporate bonds. Bearing this in mind, investors needn't fear higher yields at the moment, according to Simon.
Views: 38 TradingFloor.com
Risk and reward introduction | Finance & Capital Markets | Khan Academy
 
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Basic introduction to risk and reward. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles-tutorial/investment-consumption/v/human-capital?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles-tutorial/hedge-funds/v/hedge-fund-strategies-merger-arbitrage-1?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: When are you using capital to create more things (investment) vs. for consumption (we all need to consume a bit to be happy). When you do invest, how do you compare risk to return? Can capital include human abilities? This tutorial hodge-podge covers it all. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 90272 Khan Academy
Session 07: Objective 1 - Bonds and Bond Valuation
 
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The Finance Coach: Introduction to Corporate Finance with Greg Pierce Textbook: Fundamentals of Corporate Finance Ross, Westerfield, Jordan Chapter 7: Interest Rates and Bond Valuation Objective 1 - Key Objective: Bonds Bond Cycle Inverse relationship between bond value and interest rate Face Value vs. Discount vs. Premium Bond To minimize interest rate risk purchase a bond with 1) shorter time to maturity 2) higher coupon rate Semiannual vs. Annual Coupons Bond Value Formula Coupon (C) Time to Maturity (t) Yield to Maturity (r) Face value paid at maturity (FV) Fisher Effect (Exact vs. Approximate) Nominal Rate (R) Real Rate (r) Inflation Rate (h) More Information at: http://thefincoach.com/
Views: 33518 TheFinCoach
Bond Investing 101: Understanding Interest Rate Risk and Credit Risk
 
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This video is one part of BondSavvy's 10-part video "The Crash Course on Corporate Bond Investing." The full Crash Course video is included with a subscription to BondSavvy https://www.bondsavvy.com/corporate-bond-investment-picks or can be bought on its own here https://www.bondsavvy.com/a-la-carte/corporate-bond-investing-101. This video explains the differences between interest rate risk and credit risk and how you can factor this into your next corporate bond investment. Many investors only invest in investment-grade bonds because they are afraid of the default risk of high-yield (or below investment grade) bonds. The challenge with this thinking is that investment-grade bonds often have longer durations (or time until maturity) and are therefore more sensitive to changes in interest rates. To alleviate these risks, it's important for investors to consider both investment-grade and non-investment-grade corporate bonds. You will learn the following by watching this video: * Difference between investment-grade corporate bonds and high-yield corporate bonds * Difference in default rates between investment-grade corporate bonds and high-yield corporate bonds * How bond prices are quoted * How owning high-yield corporate bonds can help reduce investors' interest rate risk * Why shorter-dated bonds are less sensitive to changes in interest rates * What happens to bond prices when interest rates increase?
Views: 38 BondSavvy
Session 07: Objective 1 - Bonds and Bond Valuation (2016)
 
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The Finance Coach: Introduction to Corporate Finance with Greg Pierce Textbook: Fundamentals of Corporate Finance Ross, Westerfield, Jordan Chapter 7: Interest Rates and Bond Valuation Objective 1 - Key Objective: Bonds Bond Cycle Inverse relationship between bond value and interest rate Face Value vs. Discount vs. Premium Bond To minimize interest rate risk purchase a bond with 1) shorter time to maturity 2) higher coupon rate Semiannual vs. Annual Coupons Bond Value Formula Coupon (C) Time to Maturity (t) Yield to Maturity (r) Face value paid at maturity (FV) Fisher Effect (Exact vs. Approximate) Nominal Rate (R) Real Rate (r) Inflation Rate (h) More Information at: http://thefincoach.com/
Views: 3057 TheFinCoach
Risk Premium for Stocks | Corporate Finance | CPA Exam BEC | CMA Exam | Chp 12 p 2
 
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A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment. The government borrows money by issuing bonds in different forms. The ones we will focus on are the Treasury bills. These have the shortest time to maturity of the different government bonds. Because the government can always raise taxes to pay its bills, the debt represented by T-bills is virtually free of any default risk over its short life. Thus, we will call the rate of return on such debt the risk-free return, and we will use it as a kind of benchmark.
What is RISK PREMIUM? What does RISK PREMIUM mean? RISK PREMIUM meaning, definition & explanation
 
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What is RISK PREMIUM? What does RISK PREMIUM mean? RISK PREMIUM meaning - RISK PREMIUM definition - RISK PREMIUM explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license. For an individual, a risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to induce an individual to hold the risky asset rather than the risk-free asset. It is positive if the person is risk averse. Thus it is the minimum willingness to accept compensation for the risk. The certainty equivalent, a related concept, is the guaranteed amount of money that an individual would view as equally desirable as a risky asset. For market outcomes, a risk premium is the actual excess of the expected return on a risky asset over the known return on the risk-free asset. Suppose a game show participant may choose one of two doors, one that hides $1,000 and one that hides $0. Further suppose that the host also allows the contestant to take $500 instead of choosing a door. The two options (choosing between door 1 and door 2, or taking $500) have the same expected value of $500, so no risk premium is being offered for choosing the doors rather than the guaranteed $500. A contestant unconcerned about risk is indifferent between these choices. A risk-averse contestant will choose no door and accept the guaranteed $500, while a risk-loving contestant will derive utility from the uncertainty and will therefore choose a door. If too many contestants are risk averse, the game show may encourage selection of the riskier choice (gambling on one of the doors) by offering a positive risk premium. If the game show offers $1,600 behind the good door, increasing to $800 the expected value of choosing between doors 1 and 2, the risk premium becomes $300 (i.e., $800 expected value minus $500 guaranteed amount). Contestants requiring a minimum risk compensation of less than $300 will choose a door instead of accepting the guaranteed $500. In finance, a common approach for measuring risk premia is to compare the risk-free return on T-bills and the risky return on other investments (using the ex post return as a proxy for the ex ante expected return). The difference between these two returns can be interpreted as a measure of the excess expected return on the risky asset. This excess expected return is known as the risk premium. Equity: In the stock market the risk premium is the expected return of a company stock, a group of company stocks, or a portfolio of all stock market company stocks, minus the risk-free rate. The return from equity is the sum of the dividend yield and capital gains. The risk premium for equities is also called the equity premium. Note that this is an unobservable quantity since no one knows for sure what the expected rate of return on equities is. Nonetheless, most people believe that there is a risk premium built into equities, and this is what encourages investors to place at least some of their money in equities. Debt: In the context of bonds, the term "risk premium" is often used to refer to the credit spread (the difference between the bond in
Views: 5174 The Audiopedia
Financial Management - Lecture 13
 
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interest rates levels, nominal interest rates, determinants of interest rates, quoted interest rates, nominal interest rates, real interest rates,risk-free interest rates, real risk-free interest rates, nominal risk-free interest rates, quoted risk-free interest rates, inflation, premium, risk premium, inflation premium, purchasing power, purchasing power premium, default risk, default risk premium, liquidity risk. liquidity premium, maturity risk, maturity risk premium, volatility risk, price risk, interest rate risk, expected inflation, fungible, fungibility, marketable, marketability, reinvestment risk, TIPS, calculation risk, inflation-reporting risk, risk-free bonds, default-risk bonds, currency denomination.
Views: 26894 Krassimir Petrov
WHAT ARE INVESTMENT GRADE BONDS? (Introduction To Bonds)
 
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FOLLOW ME ON INSTAGRAM FOR DAILY MOTIVATIONAL CONTENT ✔️ @ryanscribnerofficial _______ Ready to start investing? 🤔💸 BETTERMENT: "Passive investing, they manage everything for you." 📈 http://ryanoscribner.com/betterment STASH: "Round up your spare change and invest automatically." 💰 http://ryanoscribner.com/stash ROBINHOOD: "Invest in individual stocks commission free." 🏹 http://ryanoscribner.com/robinhood FUNDRISE: "Passive real estate investing, 8 to 11% returns." 🏠 http://ryanoscribner.com/fundrise M1 FINANCE: "Invest in partial shares of stocks like Amazon." 📌 http://ryanoscribner.com/m1-finance LENDING CLUB: "Become the bank and make interest on loans." 🏦 http://ryanoscribner.com/lending-club COINBASE: "Get $10 in free Bitcoin (when you fund $100)." ⭐ http://ryanoscribner.com/coinbase _______ Want more Ryan Scribner? 🙌 FREE INVESTING COURSE ▶︎ http://ryanoscribner.com/free-course FACEBOOK GROUP FOR ENTREPRENEURS ▶︎ https://www.facebook.com/groups/164766680793265/ COURSE CREATION COMPANION ▶︎ http://ryanoscribner.com/course-creation-companion LIKE MY FACEBOOK PAGE ▶︎ https://www.facebook.com/ryanoscribner/ PASSIVE INCOME MASTER CLASS ▶︎ http://ryanoscribner.com/passive-income _______ Premium Educational Programs 🧐 PRIVATE STOCK MARKET INVESTING SITE 📊 http://ryanoscribner.com/stock-radar STOCK MARKET INVESTING COURSE 📈 http://ryanoscribner.com/stock-market-investing-course _______ ★☆★ WEEKLY STOCK RADAR GIVEAWAY! ★☆★ Each week, I will be giving away a free membership to Stock Radar. I will be picking one person who does any of the following 👇 1️⃣ LIKE MY FACEBOOK PAGE https://www.facebook.com/ryanoscribner/ 2️⃣ ADD ME ON INSTAGRAM https://www.instagram.com/ryanscribnerofficial/ 3️⃣ COMMENT #StockRadar ON ANY OF MY VIDEOS _______ Ready to keep learning? 🤔📚 My Favorite Personal Finance Book 📘 https://amzn.to/2NiyDiz My Favorite Investing Book 📗 https://amzn.to/2KEyd7D My 2nd Favorite Investing Book 📗 https://amzn.to/2tZmxBU My Favorite Personal Development Book 📕 https://amzn.to/2KJKgRn Not a fan of reading? Join Audible and get two free audio books! ❌📚 http://ryanoscribner.com/audible _______ DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments. (Send me something) Scribner Media LLC PO Box 641 Ballston Spa, NY 12020 Support the channel with a donation... BTC = 1BRJhB1nuTum9sZ5huBbJwmq66Lqw7Tcac ETH = 0x9A760ef81625Ff32E0A1245F2B5D2d4aEE9E6543 LTC = LQTn2XdpKxJf527ZvYT4xXTnix7BTtXwqg
Views: 5978 Ryan Scribner
U.S. credit market fires warning about recession
 
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U.S. credit market fires warning about recession * Rising risk premiums on corporate bonds may be omen * Investors already wary of flattening yield curve * U.S. economy seen strong, keeping default rates low By Richard Leong NEW YORK, July 16 (Reuters) - A reliable bond market indicator may be waving the flag that a U.S. recession is coming, market watchers said, and it is not the flattening yield curve. Risk premiums on investment-grade corporate bonds over comparable Treasuries have been rising since February, approaching levels that are cat...
Views: 39 Tech News
Not All Bonds are Created Equal
 
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(Schwab Bond Market Today 002) Last time Kathy spoke about the recent jump in bond yields and why we think some of it has to do with a rise in the risk premium for inflation that was held down by the Federal Reserve’s bond buying program. But what she has noticed is that hasn’t necessarily happened in other markets – like the corporate bond market. On this week’s episode of Bond Market Today, Kathy is joined by Collin Martin to discuss why that might be the case. Subscribe to our channel: https://www.youtube.com/charlesschwab Click here for more insights: http://www.schwab.com/insights/ (0218-8BL4)
Views: 3366 Charles Schwab
How to find the Expected Return and Risk
 
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Hi Guys, This video will show you how to find the expected return and risk of a single portfolio. This example will show you the higher the risk the higher the return. Please watch more videos at www.i-hate-math.com Thanks for learning !
Views: 172678 I Hate Math Group, Inc
Session 6 (MBA): Risk free Rates and Equity Risk Premiums
 
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We started today’s class by tying up the last loose ends with risk free rates: how to estimate the risk free rate in a currency where there is no default free entity issuing bonds in that currency and why risk free rates vary across currencies. The rest of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at three different ways of estimating the equity risk premium. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr16/Session6.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6soln.pdf
Views: 6072 Aswath Damodaran
Other risks facing bond investors
 
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Other risks facing bond investors Bonds - call risk In addition to interest rate risk and credit risk, bond investors face plenty of other risks. One is call risk. Call risk is the risk that the issuer will call back the high yielding bond that you hold and refinance the bond at a lower rate. This is the same risk that a mortgage holder faces when you try to refinance your mortgage at a lower rate. There are a couple of ways to view this risk. First, if you buy a high-yielding bond at a 20 percent premium, and then the bond issuer calls the bond back at only a 5 percent premium, you've lost a lot of money. The other way to view call risk is in terms of lost opportunities. If you have a high-yield, long-term bond, you're probably counting on enjoying the high interest payments for the life of the bond. But if the issuer calls the bond back, you've lost the ability to lock in those high interest rates for a long time. The best way to defend against this is to find out the call provisions of any bond before you buy it. Always find out the yield to call and yield to maturity before buying a bond. Because call risk offers a no-win situation to bondholders, investors demand higher interest payments than they would otherwise expect. This is why Ginnie Mae mortgage securities offer a higher yield than comparable US Treasury securities. Ginnie Mae mortgage securities and US Treasury bonds both are backed by the full faith and credit of the US government, but Ginnie Maes can be called or refinanced, while US Treasury bonds cannot be called. Reinvestment risk Much of the risk associated with call risk is the loss of the ability to lock in a high interest rate. This is related to reinvestment risk which is another risk facing bondholders. When you invest in bonds, you normally can have maintenance of principal or maintenance of income, but not both. This emphasizes the difference between investing in long-term or short-term bonds. Short-term bonds maintain principal, not income If you invest in short-term bonds, you limit your exposure to interest rate risk. The interest rate risk you're assuming is directly related to the duration of the bond. Suppose you're invested in a short-term bond fund whose duration is two years. If interest rates go up by 1 percent, your fund's value will drop by about 2 percent. But if you're invested in a mutual fund whose duration is 10 years, your fund's value will drop by about 10 percent if interest rates go up by 1 percent, so in this respect the long-term bond fund is riskier. Long-term bonds offer higher yields and steady income Since the long-term bond fund has more interest rate risk, you might be wondering why you should even consider investing in a long-term bond fund. There are two reasons for this. The first is that the long-term bond fund normally will have a higher yield. The second is that the long-term fund provides income stability to you by locking in interest payments for a longer time. Long-term bonds have a down side in that they may lock you into a low interest rate if other rates go up. But long-term bonds have an advantage because they lock you into high interest payments in case interest rates go down. Reinvestment risk defined The risk of interest rates going down is called reinvestment risk. Here's a great example of the danger associated with reinvestment risk. I recently listened to an audio tape which advised people on how to retire in their early 40s. The tape was produced in the mid-1980s. To retire at the early age of 40 the author recommended you sell your large, expensive house and retire to the countryside where you can live cheaply. The author, who was a CPA at a prestigious accounting firm and who had an MBA from Stanford, was no amateur when it came to money. But he made a mistake in his financial planning. He forgot about reinvestment risk. How to not retire at 40 Let's walk through what the author recommended. I'm estimating some numbers here, but they're probably good estimates. Assume the author sold a big house in Boston, and bought a small, inexpensive home in North Carolina. After swapping houses, let's say he had $400,000 in cash left over. So far so good. $400,00 is a lotta loot to retire on. Next the author placed all his money in insured, one-year certificates of deposit. He even divided his money into twelve parts and invested each twelfth over the course of a year. This technique of dividing your money up and investing over time is called laddering and is useful in reducing your interest rate risk. So this trained, intelligent accountant seemed to have it all figured out, right? He had little or no credit risk because of the insured nature of bank CDs, and he even broke his retirement stash up into twelfths to further cut his risk. So what's wrong with this? Need to use maturity matching Copyright 1997 by David Luhman
Views: 803 MoneyHop.com
Default Risk and Bond Rating - Finance - What is the Definition - Financial Dictionary
 
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Although bonds normally promise a fixed flow of income, this does not mean that they are riskless investments. Although U.S. government bonds are treated as risk-free, this is not the case for corporate bonds. If a company goes bankrupt then the bondholders will not receive the payments that they have been promised and therefore there is some uncertainty surrounding future bond payments. This uncertainty is called default risk. The default risk is measured by Moody's Investors Services, Standard & Poor's Corporation, and Fitch Investors Service. All three of these entities provide financial information on firms as well as well as ratings on corporate and municipal bonds. Investment Grade Bonds Bonds that are rated BBB or above by Standard & Poor's, or Baa or above by Moody's are called investment grade bonds. Speculative Grade or Junk Bonds Bonds that are rated BB or lower by Standard and Poor's, Ba or lower by Moody's, or bonds that are unrated are considered junk bonds or speculative grade bonds. Bond rating agencies use financial ratios to grade bonds. The key ratios used are show below as follows Coverage ratios Leverage ratio Liquidity ratios Profitability ratios Cash flow-to-debt ratio https://www.youtube.com/user/Subjectmoney https://www.youtube.com/watch?v=7a7b8v6Mz7A
Views: 1830 Subjectmoney
Bonds & Bond Valuation | Introduction to Corporate Finance | CPA Exam BEC | CMA Exam | Chp 7 p 1
 
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When a corporation or government wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities that are generically called bonds. In this section, we describe the various features of corporate bonds and some of the terminology associated with bonds. We then discuss the cash flows associated with a bond and how bonds can be valued using our discounted cash flow procedure. BOND FEATURES AND PRICES As we mentioned in our previous chapter, a bond is normally an interest-only loan, meaning that the borrower will pay the interest every period, but none of the principal will be repaid until the end of the loan. For example, suppose the Beck Corporation wants to borrow $1,000 for 30 years. The interest rate on similar debt issued by similar corporations is 12 percent. Beck will thus pay .12 × $1,000 = $120 in interest every year for 30 years. At the end of 30 years, Beck will repay the $1,000. As this example suggests, a bond is a fairly simple financing arrangement. There is, however, a rich jargon associated with bonds, so we will use this example to define some of the more important terms. In our example, the $120 regular interest payments that Beck promises to make are called the bond’s coupons. Because the coupon is constant and paid every year, the type of bond we are describing is sometimes called a level coupon bond. The amount that will be repaid at the end of the loan is called the bond’s face value, or par value. As in our example, this par value is usually $1,000 for corporate bonds, and a bond that sells for its par value is called a par value bond. Government bonds frequently have much larger face, or par, values. Finally, the annual coupon divided by the face value is called the coupon rate on the bond; in this case, because $120/1,000 = 12%, the bond has a 12 percent coupon rate. The number of years until the face value is paid is called the bond’s time to maturity. A corporate bond will frequently have a maturity of 30 years when it is originally issued, but this varies. Once the bond has been issued, the number of years to maturity declines as time goes by. BOND VALUES AND YIELDS As time passes, interest rates change in the marketplace. The cash flows from a bond, however, stay the same. As a result, the value of the bond will fluctuate. When interest rates rise, the present value of the bond’s remaining cash flows declines, and the bond is worth less. When interest rates fall, the bond is worth more. To determine the value of a bond at a particular point in time, we need to know the number of periods remaining until maturity, the face value, the coupon, and the market interest rate for bonds with similar features. This interest rate required in the market on a bond is called the bond’s yield to maturity (YTM). This rate is sometimes called the bond’s yield for short. Given all this information, we can calculate the present value of the cash flows as an estimate of the bond’s current market value.
January 2018 Data Post 5: Country Risk Update
 
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As globalization becomes the norm for both companies and countries, we are faced with a challenge. Even developed market companies derive portions of their revenues from emerging markets, drawn to them by their higher growth. The risk in these emerging markets is higher than in developed markets and they only vehicle to convey this risk into the valuation is the equity risk premium. In the session, I update my estimates for country equity risk premiums and explain how to bring them into a company valuation. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/dataupdate5for2018.pdf Blog Post: https://aswathdamodaran.blogspot.in/2018/01/january-2018-data-update-5-country-risk.html Data: 1. Country Risk Premiums (Default Spreads, Ratings, ERP): http://www.stern.nyu.edu/~adamodar/pc/blog/CountryRiskAll.xlsx 2. My fully country risk premium dataset: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls 3. Spreadsheet to compute company equity risk premiums: http://www.stern.nyu.edu/~adamodar/pc/CompanyERP.xls
Views: 3002 Aswath Damodaran
Volatility and the Risk Premium of a Single Stock
 
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This video shows why you should not use volatility to determine the risk premium of a single stock. Volatility is a measure of total risk, which includes both market risk (systematic risk) and firm-specific risk (unsystematic risk). Because firm-specific risk can be diversified away, investors do not demand a risk premium for holding it. Thus, the important factor in determining the risk premium (and thereby the cost of capital) for a single stock is to use a measure of market risk (beta). This is not to say that volatility is unimportant; the volatility of a portfolio of stocks, for example, comes into play with the Sharpe Ratio. The Sharpe Ratio enables investors to calculate how much excess return they can expect to receive per unit of volatility. Edspira is your source for business and financial education. To view the entire video library for free, visit http://www.Edspira.com To like us on Facebook, visit https://www.facebook.com/Edspira Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com To follow Michael on Facebook, visit https://facebook.com/Prof.Michael.McLaughlin To follow Michael on Twitter, visit https://twitter.com/Prof_McLaughlin
Views: 5113 Edspira
Money and Banking - Lecture 44 HD
 
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Chapter 6. Risk Structure of interest rates, risk structure, term structure, risk, risk premium, default, default risk, credit risk, credit premium, spread, interest-rate spread, credit spread, inflation risk, inflation premium, currency risk, exchange-rate risk, currency premium, market price, market value, fundamental value, fair value, credit rating, creditworthiness, credit ratings agency, investment-grade bonds, speculative-grade bonds, junk binds, high-yield bonds, municipal bonds, tax-free bonds, taxable bonds, treasury bonds, corporate bonds, term structure of interest rates, yield curve, normal yield curve, upward-sloping yield curve, downward-sloping yield curve, inverted yield curve.
Views: 804 Krassimir Petrov
Session 4: Risk free Rates (continued) and first steps on ERP
 
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We started the class by completing the discussion of risk free rates, exploring why risk free rates vary across currencies and what to do about really low or negative risk free rates. The blog post below captures my thoughts on negative risk free rates: http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html We are about halfway through the discussion of equity risk premiums but the contours of the discussion should be clear. a. Historical equity risk premiums are not only backward looking but are noisy (have high standard errors). You can the historical return data for the US on my website by going to http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html Click on current data, and look to the top of the table of downloadable data items. b. Country risk premium: The last few months should be a reminder of why country risk is not diversifiable. As you see markets are volatile around the world, I think you have a rationale for a country risk premium. You can get default spreads for country bonds on my site under updated data. If you are interested in assessing and measuring country risk, to get from default spreads to equity risk premiums, you need two more numbers. The first is the standard deviation for the equity market in the country that you are trying to estimate the premium for. Try the Bloomberg terminal. Find the equity index for the country in question (Bovespa for Brazil, Merval for Argentina etc.) and type in HVT. This should give you the annualized standard deviation in the index - change the default to weekly and use the 100-week standard deviation. Do the same for the country bond in question. The two standard deviations should yield the relative volatility. If you have trouble finding either number, just multiply the default spread by 1.4 to get a rough measure of the country risk premium. If you want my estimates of country risk premiums, check under updated data on my website. The direct link is below: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls You can also see my latest blog post on country risk here: http://aswathdamodaran.blogspot.com/2017/01/january-2017-data-update-4-country-risk.html Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/riskfree.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr17/session4.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4soln.pdf
Views: 12820 Aswath Damodaran
Financial Management - Lecture 25 HD
 
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yield, yield-to-maturity, discount bond, deep-discount bond, premium bond, zero-coupon bond, interest rate sensitivity, interest rate volatility, interest rate risk, secured vs unsecured, senior vs subordinated, Eurobonds, high-grade bonds, high-yield bonds, junk bonds, amortizing bond, callable bond, convertible bond, nominal interest rates, real interest rates, expected inflation, Fisher effect, Fisher equation, risk, risk premium, default risk, default premium, liquidity risk, liquidity premium, maturity risk, maturity premium, inflation risk, inflation premium, currency risk, currency premium, yield curve, normal yield curve, falling yield curve, inverted yield curve, rising yield curve, normal yield curve, steepening yield curve.
Views: 1036 Krassimir Petrov
"Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle"
 
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Presentation of this research during The Rothschild Caesarea Center 11th Annual Conference, IDC. Abstract - We develop a structural credit risk model with time-varying macroeconomic risks and endogenous liquidity frictions. The model not only matches the average default probabilities, recovery rates, and average credit spreads for corporate bonds across di erent credit ratings, but also can account for bond liquidity measures including Bond-CDS spreads and bid-ask spreads across ratings. We propose a novel structural decomposition scheme of the credit spreads to capture the interaction between liquidity and default risk in corporate bond pricing. As an application, we use this framework to quantitatively evaluate the e ects of liquidity-provision policies for the corporate bond market.
Views: 514 IDC Herzliya
Session 5: Implied Equity Risk Premium (audio fixed)
 
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I had posted the video for this session a day ago (Sept 21) but the audio was missing from the last 20 minutes. Since I could not recover that audio, I shot an add-one webcast to cover that material and added it to the first hour of the actual class. You will notice when the transition happens. In this session, we started by looking at the implied equity risk premium as of September 21 and I am attaching the implied premium spreadsheet for you to experiment with. After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/ERPtest2016.xls Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession5.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5soln.pdf
Views: 4116 Aswath Damodaran
"Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle"
 
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Discussion on the paper "Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle" at The Rothschild Caesarea Center 11th Annual Conference, IDC, Israel
Views: 167 IDC Herzliya
Jim Keegan, manager of the RidgeWorth Total Return Bond Fund, says corporate bonds less...
 
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JIM KEEGAN, MANAGER OF THE RIDGEWORTH TOTAL RETURN BOND FUND, SAYS CORPORATE BONDS LESS RISKY AS PENSION PLANS BECOME FULLY FUNDED ANCHOR QUESTION OFF-CAMERA (ENGLISH) SAYING: In terms of the holdings in your fund, you've got a majority of mortgage-backed securities, so now that we know the Fed is cutting back on its own purchase of MBS, do you shift your holdings at all? How does what the Fed is doing affect what you're doing in your portfolio? JIM KEEGAN, MANAGER, RIDGEWORTH TOTAL RETURN BOND FUND (ENGLISH) SAYING: Actually, the Fed's been buying mostly 30-year securities and our holdings have been primarily in 15-year collateral. And the reason for that is you have better extension risk protection and prepayment risk protection, much more certainty of cash flows, so that's not been where the Fed's been playing and it will not be negatively impacted by the Fed tapering. ANCHOR QUESTION OFF-CAMERA (ENGLISH) SAYING: So you'll hold the line or will you add to that position? JIM KEEGAN, MANAGER, RIDGEWORTH TOTAL RETURN BOND FUND (ENGLISH) SAYING: Well, if things cheapen up, we will add. I mean, if you look at all risk premiums, so asset prices are at all-time record highs, whether you look at stocks. Interest rates, while low, went up last year. And risk premiums, whether you're looking at corporate bonds, mortgage-backed securities, agency securities, high-yield, leveraged loans, they're all relatively tight on a historical basis. So to the extent that you do get any back-up in valuations, we would be looking to add at the right time. ANCHOR QUESTION OFF-CAMERA (ENGLISH) SAYING: And how about treasuries? You've got about 21% of your holdings in treasuries, are you less pessimistic then about government debt, where is it on the curve that you find opportunity especially in light of the fact that we are seeing a changing environment? JIM KEEGAN, MANAGER, RIDGEWORTH TOTAL RETURN BOND FUND (ENGLISH) SAYING: Yeah, our exposure has been primarily in the 10-year sector and within the corporate bond sector out a little bit longer than that. We think that as corporate defined benefit plans ...
Views: 23 Market Screener
Introduction to The Equity Risk Premium
 
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Professor David Hillier, University of Strathclyde; Short videos for my students Check out www.david-hillier.com for my personal website.
Views: 2768 David Hillier
What Is A Bond Spread?
 
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A credit spread is the difference in yield between two bonds of similar maturity but different quality. Most often, a corporate bond with certain amount of risk is compared to standard free treasury. High yield bond spread is also referred to as credit the term spreads or refers interest rate differential between two bonds. Bond spread? Definition and meaning investorwordshigh yield bond spread what are spreads? Finpipe. Yields are calculated from executable best bid prices the mts cash market. Bond spreads are the common way that market participants compare value of one bond to another, much like price earnings ratios 30 oct 2017 learn about yield spread, a key metric investors can use gauge how expensive or cheap particular bond, group bonds, might be definition. We show that expected default accounts for a surprisingly small fraction of the premium in corporate rates over treasuries. If you are a trader, investor or anyone involved in the bond market, may want to know how calculate spread. Spread 28 feb 2018 high yield bond spreads can be an effective complacency and bubble indicator are currently sounding the alarm of excessive investor purpose this article is to explain spread between rates on corporate government bonds. In terms of business cycles, widening spreads indicate a let's assume that bond x is yielding 5. Bond spreads financial definition of bond. No bond exists 29 apr 2016 spreads tighten with improving economic conditions and widen deteriorating. Spread compression definition from financial times lexicon. What every investor should know about yield spread the balance. In the world of bonds, analyzing size that reward typically in form higher interest payments can give investors clues about both risk a particular issuance and overall market sentiment. The difference between the yields of two bonds with differing credit ratings. For example, if one bond is yielding 7. When a bond price goes up its yield down. What does bond spreads mean in finance? Bond spread? Definition and meaning investorwordshigh yield spread what are spreads? Finpipe. Typically this figure will show how much more yield could be obtained by investing in bonds with higher 30 nov 2015 when investors agree to take on risk, they generally demand a bigger reward. G spread and other bond spreads how to calculate 11 steps (with pictures) wikihow. Junk bond spreads reveal complacency explaining the rate spread on corporate bonds semantic scholar. Googleusercontent search. For example, if the 10 year treasury note is trading at a yield of 6. Bond spread refers to the difference between interest rates of two bonds. Bond spreads as economic indicators. The spread on bonds is usually expressed as the difference between of same maturity but different quality, for example yield a 10 year treasury vs corporate bond. Yield spread why is it important to know? (in detail) educba. Asp "imx0m" url? Q webcache. Spread definition & example what is a credit spread? Thestreet defin
Views: 42 E Info
Cost of Equity Capital
 
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In this video I calculated the cost of retained earning using the Capital Asset Pricing Model (CAPM), the Dividend Discount Model, and the Own Bond Plus Risk Premium Approach. I also calculate the cost of a equity from a new stock issue.
Views: 43 Kirby Cundiff
uestion
12.4 The Debt Cost of Capital
Use the following information t
 
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uestion 12.4 The Debt Cost of Capital Use the following information to answer the question(s) below. Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.0% 0.2% 0.4% 2.1% 5.2% 9.9% Recession Default Rate 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 43.0% Average Beta 0.05 0.05 0.05 1.0 0.17 0.26 0.31 1) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of 7.0%, and a BBB rating. The corresponding risk-free rate is 3% and the market risk premium is 5%. Assuming a normal economy, the expected return on Wyatt Oils debt is closest to: A) 3.0% B) 3.5% C) 4.9% D) 5.5% 2) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of 7.0%, and a BBB rating. The bondholders expected loss rate in the event of default is 70%. Assuming a normal economy the expected return on Wyatt Oils debt is closest to: A) 3.0% B) 3.5% C) 4.9% D) 6.7% 3) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of 7.0%, and a BBB rating. The bondholders expected loss rate in the event of default is 70%. Assuming the economy is in recession, then the expected return on Wyatt Oils debt is closest to: A) 3.5% B) 4.9% C) 5.5% D) 7.0% 4) Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B rating. The corresponding risk-free rate is 3% and the market risk premium is 6%. Assuming a normal economy, the expected return on Rearden Metals debt is closest to: A) 0.6% B) 1.6% C) 4.6% D) 6.0% 5) Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B rating. The bondholders expected loss rate in the event of default is 50%. Assuming a normal economy the expected return on Rearden Metals debt is closest to: A) 0.6% B) 1.6% C) 4.6% D) 6.0% 6) Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B ra
Views: 2 gfhnjcj fgnxdj
CFA Tutorial: Fixed Income (Know How to Calculate Risk Premium)
 
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Download Fixed Income Question Bank: http://www.edupristine.com/ca/free-10-day-course/cfa-fixed-income/ Risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, or the expected return on a less risky asset, in order to induce an individual to hold the risky asset rather than the risk-free asset. About EduPristine: Trusted by Fortune 500 Companies and 10,000 Students from 40+ countries across the globe, EduPristine is one of the leading Training provider for Finance Certifications like CFA, PRM, FRM, Financial Modeling etc. EduPristine strives to be the trainer of choice for anybody looking for Finance Training Program across the world. Subscribe to our YouTube Channel: http://www.youtube.com/subscription_center?add_user=edupristine Visit our webpage: http://www.edupristine.com/ca
Views: 1219 EduPristine
What is a Bond | by Wall Street Survivor
 
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What is a bond? Learn more at: https://www.wallstreetsurvivor.com A bond is a debt investment in which an investor loans money to a corporate entity or government. The funds are borrowed for a defined period of time at either a variable or fixed interest rate. If you want a guaranteed money-maker, bonds are a much safer option than most. There are many times of bonds, however, and each type has a different risk level. Unlike stocks, which are equity instruments, bonds are debt instruments. When bonds are first issued by the company, the investor/lender typically gives the company $1,000 and the company promises to pay the investor/lender a certain interest rate every year (called the Coupon Rate), AND, repay the $1,000 loan when the bond matures (called the Maturity Date). For example, GE could issue a 30 year bond with a 5% coupon. The investor/lender gives GE $1,000 and every year the lender receives $50 from GE, and at the end of 30 years the investor/ lender gets his $1,000 back. Bonds di er from stocks in that they have a stated earnings rate and will provide a regular cash flow, in the form of the coupon payments to the bondholders. This cash flow contributes to the value and price of the bond and affects the true yield (earnings rate) bondholders receive. There are no such promises associated with common stock ownership. After a bond has been issued directly by the company, the bond then trades on the exchanges. As supply and demand forces start to take effect the price of the bond changes from its initial $1,000 face value. On the date the GE bond was issued, a 5% return was acceptable given the risk of GE. But if interest rates go up and that 5% return becomes unacceptable, the price of the GE bond will drop below $1,000 so that the effective yield will be higher than the 5% Coupon Rate. Conversely, if interest rates in general go down, then that 5% GE Coupon Rate starts looking attractive and investors will bid the price of the bond back above $1,000. When a bond trades above its face value it is said to be trading at a premium; when a bond trades below its face value it is said to be trading at a discount. Understanding the difference between your coupon payments and the true yield of a bond is critical if you ever trade bonds. Confused? Don't worry check out the video and head over to http://courses.wallstreetsurvivor.com/invest-smarter/
Views: 107967 Wall Street Survivor
Financial Accounting: Bond Prices (Premiums) & Corporations (Paid-in Capital & the Balance Sheet)
 
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Introduction to Financial Accounting Bond Prices : Premiums (Chapter 11) Corporations: Paid-in Capital & the Balance Sheet (Chapter 12) April 22nd, 2013 by Professor Victoria Chiu The Professor begins this lecture by reviewing (and completing) the journal entries involved in the issuance of bonds at a premium. She also talks about the conceptual reasons as to why companies would issue bonds at a premium. Bonds are mainly issued at a premium when the company is doing very well and is expected to do better in the future, thus they deem the bonds they issue worth more than their standard face value. She also walks the class through a problem involving recording the journal entries of the issuance of bonds at a premium as well as the amortization of the premium and the recognition of interest earned during the time. Following this, the Professor moves on to discuss the journal entries involved in adjusting for bonds payable. This involves instances where the bonds are issued in the middle of the year rather than the beginning of the year (January). This obviously affects the accrual and payment of interest. After this, the Professor displays an illustration of a balance sheet that emphasizes how current and long term liabilities are recorded on it. Examples of current liabilities shown are accounts payable, employee income tax payable, FICA tax payable, employee benefits payable, sales tax payable, unearned service revenue, and more. Following this, the Professor goes over several multiple-choice exercises to conclude the chapter before moving on to chapter 12 - paid-in capital and the balance sheet. The Professor begins the chapter by going over the basics of stockholder's equity. Paid-in capital (contributed capital) is amount that is acquired from stockholders (essentially, externally generated). The main source of paid-in capital is the issuance of common stock. Retained earnings, on the other hand, is capital that is internally generated. It is the result of profitable operations. It is net income that the company decides to keep for use within the company. Following this, the Professor goes over key terms within the corporate organization: -----Authorization is the state's permission for a given corporation (within that state) to operate. -----Authorized stock is the maximum amount of shares that a corporation is allowed to issue. -----Capital stock is defined as the individual ownership of a corporation's capital. -----Stock certificates are papers that prove that a stockholder has ownership within the corporation (essentially, they prove that the stockholders are actually stockholders). -----Stock certificates normally show basic information about the company, the stockholder's name and the number of shares issued. -----Outstanding stock is stock that is currently being held by stockholders. The Professor also differentiates between the two classes of stock - Common Stock and Preferred Stock. Common stockholders have the right to vote in company related decisions (normally, the strength of their voting power is proportionate to the number of shares they hold). Common stockholders can also receive a dividend (although it is not guaranteed - if the company is not doing well it may not give any). The Professor reviews the rights of preferred stockholders and explains the concept of stock with par vs. stock without par (no-par) before closing the lecture. ------QUICK NAVIGATION------ Video Begins with Issuing Bonds Payable at Premium (Journal Entry and Ledger Focused) Bonds Payable at Premium (Balance Sheet Presentation): 7:10 Exercise S11-8: Journalizing Bond Transactions: 17:07 Exercise S11-8 Solution Review: 22:56 Adjusting Entries for Bonds Payable: 32:33 Liabilities on Balance Sheet: 42:08 Multiple Choice Exercises: 45:49 NEW TOPIC BEGINS HERE: CHAPTER 12: Corporations: Paid-in Capital & the Balance Sheet: 58:49 Stockholder's Equity Basics: 58:24 Classes of Stock: 1:07:07 Par & No-par Stock: 1:11:17 To receive additional updates regarding our library please subscribe to our mailing list using the following link: http://rbx.business.rutgers.edu/subscribe.html
CAPM Capital Asset Pricing Model in 4 Easy Steps - What is Capital Asset Pricing Model Explained
 
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OMG wow! I'm SHOCKED how easy clicked here http://www.MBAbullshit.com for CAPM or Capital Asset Pricing Model. This is a model applied to indicate an investor's "expected return", or how much percentage profit a company investor ought to logically demand to be a "fair" return for making investments into a company. http://mbabullshit.com/blog/2011/08/06/capm-capital-asset-pricing-model/ To find this, yet another question can be queried: Just how much is the sound "decent" percentage % profit that a financier should probably receive if he invests in a business (having comparatively high risk) in contrast to putting his money in government bonds which might be regarded to be "risk free" and instead of putting his hard earned cash in the general share market presumed to offer "medium" risk? Visibly, it is almost only "fair" that in fact the investor receives a gain higher compared to the government bond percentage (due to the reason that the solitary enterprise possesses higher risk). It's moreover only just that he should expect a return larger than the broad stock exchange yield, because the specific business enterprise has higher risk compared to the "medium risk" general stock market. So just as before,how much exactly should this investor fairly receive as a smallest expected return? This is where the CAPM Model or Capital Asset Pricing Model comes in. The CAPM Formula includes all these variables simultaneously: riskiness of the individual firm depicted by its "beta", riskiness of the universal stock market, rate of interest a "risk free" government bond would give, as well as others... and then spits out an actual percent which your investor "should be allowed" to take for investing his or her hard earned money into this "riskier" single firm. This particularly exact percent is known as the "expected return", given that it can be the yield that he should "expect" or require to obtain if he invests his hard earned cash into a specific firm. This precise percentage is known as the "cost of equity". The CAPM Model or CAPM Formula looks something like this: Expected Return = Govt. Bond Rate + (Risk represented by "Beta")(General Stock Market Return --Govt. Bond Rate) Utilizing this formula, you are able to see the theoretically exact rate of return theindividual business enterprise investor ought to reasonably expect for his or her investment, if the CAPM Model or Capital Asset Pricing Model is to be held. http://www.youtube.com/watch?v=LWsEJYPSw0k What is CAPM? What is the Capital Asset Pricing Model?
Views: 469054 MBAbullshitDotCom
Session 3: The Risk Free Rate
 
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Sets up the requirements for a rate to be risk free and the estimation challenges in estimating that rate in different currencies.
Views: 135867 Aswath Damodaran
Expected Market Returns | Stock Variances | Corporate Finance | CPA Exam BEC | CMA Exam | Chp 13 p 1
 
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The expected market return is an important concept in risk management, because it is used to determine the market risk premium. The market risk premium, in turn, is part of the capital asset pricing model, (CAPM) formula.
Excel Finance Class 54: Bonds & Interest Rate Risk
 
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Download Excel workbook http://people.highline.edu/mgirvin/ExcelIsFun.htm Learn Interest Rate Risk: 1. The Longer The Maturity, The More YTM Affects Bond Price 2. The Lower The Coupon Rate, The More YTM Affects Bond Price
Views: 11544 ExcelIsFun
Infinite Banking - What Makes Cash Value Life Insurance a Premium Asset?
 
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Infinite Banking - What Makes Cash Value Life Insurance a Premium?Asset Get 10X RETURNS (or more) ON LIQUID CASH Without giving up quick access to capital. FIND OUT HERE: https://themoneyadvantage.com/liquid-capital Read Full Blog Here: http://www.marshallsinsurance.com/infinite-banking-what-makes-cash-value-life-insurance-a-premium-asset When you purchase insurance, you are insuring against a loss. This is the case for life insurance. And it’s a correct way to understand life insurance death benefit, which is the portion of any life insurance policy that pays out to your family if you pass away. But the cash value of a specially designed whole life insurance policy is the often undiscovered and underutilized tool. It is the portion of your death benefit that you have access to use during your life, better categorized as a living benefit. It’s this cash value of life insurance that would show up as an asset on your balance sheet, and a premium asset at that. It’s important to understand what the cash value does and it’s role in your financial portfolio. The cash value of life insurance is a superior place to store cash, because of its safety, liquidity, and growth. It’s important to note here that we are not comparing life insurance to investments, which inherently carry risk. It would be comparable to other safe, liquid assets such as checking or savings accounts, money markets, CDs or bonds. GROWTH In terms of growth, your cash value inside the policy grows through premiums, dividends, and interest. Once a dividend is paid, it sets a new floor inside the policy, and cash value never goes down in value, whether you fund it over your whole life or you stop payments early and have no more premiums due through an option called reduced paid-up. Because company profits are paid out to whole life policyholders of a mutual company through dividends, it is to everyone’s advantage that the company is profitable. SAFETY While a bank is using leverage and fractional reserve banking, the life insurance company is holding dollar for dollar reserves. This is why you see more stability with life insurance companies overall, as referenced by the 526 banks that have failed since 2008, compared with 17 life and/or health insurance companies that have gone into receivership or liquidation (https://www.fdic.gov/bank/individual/failed/banklist.html, https://www.nolhga.com/factsandfigures/main.cfm/location/insolvencies/orderby/date#sort). You can mitigate even this small amount of risk by working with a large mutual insurance company with a 100+ year history of paying dividends, A ratings or higher, and a Comdex score of 90+. The life insurance company’s primary asset is corporate grade bonds, held to maturity. They use laddering to stagger the maturation timeframes to maximize their liquidity and income. John Moriarty’s book, Understanding Specially Designed Life Insurance Contracts (link: https://www.amazon.com/Understanding-Specially-Designed-Insurance-Contracts/dp/151969234X), digs further into the asset allocation of a mutual life insurance company. TAX-FREE Another important feature that distinguishes cash value of life insurance is that it is a tax-free asset. You pay taxes on your income when you are paid initially. Then, you put your taxed dollars into life insurance, and, as long as you use it correctly, your money is not taxed again. The growth is not taxed inside the policy, and the death benefit is not taxed when it pays out to your beneficiaries after you die. Let’s contrast this taxation with how you’re taxed on a stock account, savings, money market, or CD. Here, you would pay tax before funding the asset, AND you would pay tax on all of the interest gained on the account. When you get a rate of return on a taxable account, you have to subtract the tax rate to get a true internal rate of return. However, in a life insurance policy, you are not paying tax on the growth. LIQUIDITY The cash value of your policy is money that you have access to use by borrowing against it with a policy loan. This allows you to not only store cash, but be able to use it as a loan with no restrictions on the basis of credit, age, the intended use of the money, or waiting for the market to be high enough to warrant converting to cash, and without having to pay hefty taxes and penalties. #fulllifewealth #infinitebanking Music: http://www.bensound.com/royalty-free-music"
Risk Free Rate
 
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ZACH DE GREGORIO, CPA www.WolvesAndFinance.com Discussion of the theoretical concept of the "Risk Free Rate." This also provides an explanation of why people use US Treasuries as the Risk Free Rate and why so many people watch the Yield Curve for US Treasuries. The Risk Free Rate is a theoretical concept that stands for the one investment opportunity that is the most risk free. It is not entirely without risk. It is finding the rate of the most risk free opportunity, because this sets the benchmark for your financial analysis. Every opportunity then exists on a spectrum of risk, starting at the risk free rate. How you use this on a practical level, is you would use US treasuries. The US economy is very large, consistent economy, and is considered as the least risky alternative. Government securities are considered less risky than companies. Governments generally don’t go bankrupt (with a few notable exceptions). Government securities are based on the productivity of a country’s people, who pay taxes which pay the interest on bonds. If the government budget ever gets into trouble they can raise taxes which makes it a low risk investment. This is a generalization and I am not hyping US treasuries. The goal is to pick some security to use as a benchmark for the risk free rate. The point is that everything is interrelated in finance. As the risk free rate moves up and down, it impacts everything else in finance. Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.
Views: 2777 WolvesAndFinance
Sequence of Return Risk and Interest Rates vs. Total Returns
 
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Sequence of return risk is among the largest mistakes non-professionals and math-oriented investors make regarding personal financial planning. These folks conflate AVERAGE investment returns with a annual, year over year, investment returns. And you just can't do that. Let me explain. You look at the S&P 500 and see that it has averaged say 10% a year since 1926. Thus you think if you invest in the S&P500 you can safely withdraw 6% a year and you will still add 4% a year to your capital base. $100,000 in the SP 500 allows you to withdraw $6,000 and the next year you have $104,000 in your account. Using average returns over time, this actually makes sense. But reality isn't 'average'. In reality, the SP 500 has years like 2000, 2001 and 2002 when it was down 9%, 11% and 22% respectively. In this case, your $100,000 fell to $91,000 in 2000. Then you withdrew $6000 and now your investment was down to $85,000. The following year, your $85,000 fell 11% to be down to $75, 650 and once you withdrew your $6,000 you only had around $69,000 left. In 2002, the portfolio fell another 22%, putting you down to $54,000 and when you withdrew $6,000 you were left with less than HALF of what you started with 3 short years earlier. Your $6,000 a year withdrawals are no longer equal to 6% like it was initially, but now you're withdrawing almost 13% a year from your portfolio! No amount of growth from here on out is going to save you. You WILL run out of money! That is sequence of return risk. Even though the market averaged 10% a year, or whatever it was, in any year you could lose your shirt and thus your distribution percentage is WAY higher than can be sustained. This is where the 4% rule becomes important to understand. Because it is the 4% rule that takes into consideration sequence of return risk. Second part of this video, I talk about how interest rates work vs. total return on bonds and bond funds. Interest rates are simply what you get for investing your money into a bond TODAY. I buy a bond today that has a an interest rate(or coupon) of 6% for $100,000. I will then receive $6,000 annually until either the bond matures and I get my $100,000 back. The issuer goes bankrupt, in which case I lose everything. Or the bond is called, kind of like a corporate debt refinance, and I receive the $100,000 back. Now let's say interest rates go down across the economy. That same issuer of the bond I hold now issues new bonds but this time they're only paying 5%. The new bonds also cost $100,000. So, if I were to buy a new bond for $100,000 I'd only get $5,000 a year in interest. Which do you think is more valueable? A bond paying $5,000 or a bond paying $6,000? Well, the $6,000 bond is of course. This means my $6,000 a year bond will command a higher price than the bond that only pays $5,000. But remember I paid $100,000 for each bond. So, in this case, my 6% bond could be sold for MORE than $100,000 because an investor would be willing to pay a premium on that bond in order to get more interest. The investor says something like, "I can pay $100,000 to get $5,000 a year interest, or I can pay $105,000 to get $6,000 a year interest." (There is a mathematical formula to determine the actual value for the 6% bond by the way.) Let's say I sell my 6% bond for $105,000. Now I've made $5,000 in capital gain AND $6,000 in bond interest for a total return of 11%. Whereas if I didn't sell the bond, I'd just get interest of 6%. And that is the difference between the two. But, critical to remember, my 11% total return is only temporary. I can not get 11% total return again. The only reason I was able to pocket that extra $5k was because interest rates went down. They can only go down so far In fact, when they start going up again, my 5% will LOSE value because it's only paying $5,000 when other bonds are paying $6,000. In this case, I'd take a LOSS in order to sell that bond and that loss would offset the capital gain I had before. Finally, at the end of the day, the ONLY return one can correctly assume he will earn on bonds is the interest rate he receives on the day he bought the bond. All other returns, that go into the total return calculation are only temporary. You can not rely on total return of bonds to estimate your potential for a bond investment. You should ONLY use interest rate at the time you purchased. For more information on topics like this, visit my website at www.heritagewealthplanning.com ================================= If you like what you see, a thumbs up helps A LOT. So, give me a thumbs up, please! Don't forget to SUBSCRIBE by clicking here: https://www.youtube.com/channel/UCSEzy4i9xrKPoaU9z0_XbmA?sub_confirmation=1 GET MY BOOK: Strategic Money Planning: 8 Easy Ways To Put Your House In Order It's FREE if you're a Kindle Unlimited Subscriber! https://amzn.to/2wKGi50
Debt Mutual Fund Classification in India in Hindi | New Types of Debt Fund | Debt Funds in Hindi
 
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Debt Mutual Fund Classification in India in Hindi | New Types of Debt Fund | Debt Funds in Hindi New Debt Fund Types - 1. Liquid Funds 2. Ultra Short Term Funds 3. Low Duration Fund 4. Money Market Fund 5. Short Duration Fund 6. Medium Duration Fund 7. Medium to Long Duration Fund 8. Long Duration Fund 9. Dynamic Fund 10. Corporate Bond Fund 11. Credit Risk Fund 12. Banking & PSU Fund 13. Gilt Fund 14. Floater Fund Make your Free Financial Plan today: http://wealth.investyadnya.in/Login.aspx Yadnya Book - 108 Questions & Answers on Mutual Funds & SIP - Available here: Amazon: https://goo.gl/WCq89k Flipkart: https://goo.gl/tCs2nR Infibeam: https://goo.gl/acMn7j Notionpress: https://goo.gl/REq6To Find us on Social Media and stay connected: Facebook Page - https://www.facebook.com/InvestYadnya Facebook Group - https://goo.gl/y57Qcr Twitter - https://www.twitter.com/InvestYadnya
Credit default swaps | Finance & Capital Markets | Khan Academy
 
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Introduction to credit default swaps. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/credit-default-swaps-tut/v/credit-default-swaps-2?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/credit-default-swaps-tut/v/credit-default-swaps-cds-intro?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: Interest is the basis of modern capital markets. Depending on whether you are lending or borrowing, it can be viewed as a return on an asset (lending) or the cost of capital (borrowing). This tutorial gives an introduction to this fundamental concept, including what it means to compound. It also gives a rule of thumb that might make it easy to do some rough interest calculations in your head. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 565888 Khan Academy
CFA Level I-R37- Cost of Capital- Part I
 
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The video covers first part ( out of two) of Cost of Capital, Reading 37 of CFA level I This video provides information about the following : 1. The weighted average cost of capital (WACC) . 2. Affect of taxes on cost of capital from different capital sources. 3. Alternative methods of calculating the weights used in the WACC, including the use of the company's target capital structure. 4. The marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget. 5. The marginal cost of capital's role in determining the net present value of a project. 6. The cost of fixed rate debt capital using the yield-to-maturity approach and the debt -rating approach. 7. The cost of noncallable, nonconvertible preferred stock. 8. The cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach. 9. The beta and cost of capital for a project. 10. The country equity risk premium in the estimation of the cost of equity for a company located in a developing market. 11. The marginal cost of capital schedule. 12. The correct treatment of flotation costs.
Views: 13854 FinTree