The Yield Spread Of A Corporate Bond And A Comparable Government Bond Essay

would benefit from the intervention. Black et al. (2000) found that the most frequently cited

1. "Bonds 200." Why Companies Issue Callable Bonds. N.p., 24 Sept. 2014. Web. 30 Sept. 2014.

researcher are more certain that it was X that affected Y (Stanley, Boswell, et al, 2009).

One criticism of this research is that it is correlational. Therefore, we cannot infer a causal

While these studies provide positive results the draw back to them are that the sample groups for each were considerably small which means that there is insufficient evidence to support

It will consider previous empirical research in the field from Salem et al (2013) as well as

Morris, J., & Song, L. (2013, September 16). Study Delivers Good News, Bad News on

In brief, the article’s strengths and weaknesses both revolve around data collection. On one hand, graphic representation of the findings support the author’s thesis, provides a strong visual understanding and a conclusive response to the presented hypotheses. Nevertheless, the continuous mention, from the author, of limited available data suggests that the presented evidence may be flawed. (1, 601)

The authors relied heavily on two studies to create their argument. The first study mentioned was the Pinto et al article. In this study, "Pinto and colleagues (5) assessed the

The Miller and Modigliani (1961) study was often used as a starting with Black and Scholes (1974); Merton and Rock (1995) and Bernstein (1996) who supported their findings. However, in later research, several studies disapproved of their findings (Walter,1963; Litzenberger and Ramaswamy, 1982; Fama and French, 2002 and Kajola et al., 2015).

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

This note has three main sections. In the first part, we detail the mechanics of different asset swapping techniques seen in the market. In the second part, we assess the value of the information that different methodologies provide on the richness and cheapness of bonds. In the third part of the note, we explain what we view as the drivers underlying the dynamics of swap spreads. We then discuss how these factors may serve to explain the differences in swap spreads observed between markets. Finally, we quantify the roles of some of the factors, and illustrate their interrelationships in a series of simple empirical models based on US and European data.

The success of the model is attributed to Yale’s ability to combine both quantitative analysis (mean-variance analysis) with market judgments to structure its portfolio. In addition, Yale also uses statistical analysis to actively test their models with factors affecting the market, therefore understanding the sensitivity of their portfolio in response to various market changes. Yale also follows and forecasts the cash flow of private equity and real assets in its portfolio to decide the need for hedging.

In the first part of our report, we investigate if a 35 basis points yield spread represents mispricing of two bonds, both with the same maturity but one with a coupon rate of 10.625% and the other 4.25%. Our investigation also determines if the yield spread represents an arbitrage opportunity. In our investigation, we calculate the theoretical yield spread between the two bonds and compare the figure with the observed yield spread. It is cited in the case that the observed yield spread could be due to different liquidity premium for each bond or simply due to different durations. Through our calculations, we discover

A bond is debt to whoever sells the bond to an inventor. If you buy an IBM bond, you are loaning money ($1000) to IBM instead of a bank loaning money to them. Just like a bank, you are going to charge IBM interest on your money, as well as a return of principle when the loan is due (ten years later). The company does not go to the bank to borrow the money, because the bank will rate the company as a high risk company. Hence, banks are really tight with their money. High yields bond investment relies on an credit analysis in that it concentrates on issuer fundamentals, and a "bottom-up" process. It focuses more on "downside risk default and the unique characteristics of the issuer. In a portfolio of high yield bonds,