Wall Street Prep Fixed Income and Debt

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Wall Street Prep Debt and Fixed Income Crash Course I. Intro a. Demand comes from governments (lots of expenditure, when you have deficit  start borrowing), corporations, and households b. Fix... ed income securities: financial instruments that require borrower pay a pre-determined amount to the holder of the security in exchange for capital upfront i. Refers to debt with fixed or variable debt (changes in LIBOR!), other instruments c. Debt is a significantly larger component of the capital markets than equity i. Equity is silo-ed for corporations, but governments + households have debt too d. Types of debt: i. Bonds: actively traded financial instruments, 1. used by governments primarily ii. Loans: lender holds loan that’s not tradeable (unless securitized, ie. MBS) 1. Used by households mostly iii. Corporations do both e. Geographical breakdown: U.S. has heavy weight toward issuing corporate bonds i. U.S. dominates debt market, accounts for 40% of global debt, EM has 14% II. Bond basics (math) a. Types of bonds i. Bullet bond: conventional/vanilla bond, typical structure where bond pays out incremental interest payments and principal return at the end then you basically do trial and error to find ‘y’ or use Excel’s =RATE() function 1. =RATE(# periods, coupon rate * FV, -PV, FV) 2. =PV(target rate, # periods, couon rate * FV, FV) 3. reinvestment assumption: assumes that the interest payments you receive will be reinvested coupons at the yield, assumes every single cash flow is reinvested at the y the model spits out 4. used in corporate and longer term government bonds ii. Zero-coupon bond: bond that pays no coupon, but price at end embeds interest payments , 1. Used in short term government bonds, ie. T-Bill, money market instruments iii. Annuity bond: commingles interest and principal to create even payments every period – 1. 2. FV=0, coupon rate=0 3. Also assumes reinvestments at the yield of annuity payments 4. Used in mortgages and insurance and retirement products iv. Notes: bonds with shorter maturities usually, depending on type f note This study source was downloaded by 100000831777157 from CourseHero.com on 07-16-2022 00:04:38 GMT -05:00 https://www.coursehero.com/file/99286907/Wall-Street-Prep-Fixed-Income-and-Debtdocx/ 1. ie. corporate bonds with 20 year can be a note, but U [Show More]

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