Clark County, Nevada Investment Policy
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Investment Securities
INVESTMENT SECURITIES INTRODUCTION Individuals seeking to invest their savings are faced with numerous financial products and degrees of risk. An individual investor can invest in a corporation as an equity owner or as a creditor. If an individual chooses to become an equity owner, he will hopefully benefit in the growth of the business. He can purchase common stock or preferred stock in the corporation. Assume an investor purchases 1,000 shares of ABC Corporation common stock. ABC has 100,000 shares of common stock outstanding. Our investor owns 1% (1,000 divided by 100,000 = 1%) of the outstanding shares. He will receive 1% of any dividends paid by the corporation and would receive 1% of any remaining assets upon dissolution of the corporation, after all creditors have been paid. Our investor would receive a stock certificate evidencing his ownership of 1,000 shares of common stock of ABC Corporation. He could sell his 1,000 shares, or any lesser amount, at any time. Our investor hopes to be able to sell his shares at a higher price than he paid for them. In other words, he hopes to realize a capital gain on the sale of the shares. Our investor would also like to receive dividends on his 1,000 shares. Assume ABC pays a quarterly divi- dend of $0.20 per share. Our investor would receive a quarterly dividend of $200 or an annual dividend of $800. The two main reasons an investor buys stock in a corporation are 1. To receive any dividends paid by the corporation 2. -
Chapter 06 - Bonds and Other Securities Section 6.2 - Bonds Bond - an Interest Bearing Security That Promises to Pay a Stated Amount of Money at Some Future Date(S)
Chapter 06 - Bonds and Other Securities Section 6.2 - Bonds Bond - an interest bearing security that promises to pay a stated amount of money at some future date(s). maturity date - date of promised final payment term - time between issue (beginning of bond) and maturity date callable bond - may be redeemed early at the discretion of the borrower putable bond - may be redeemed early at the discretion of the lender redemption date - date at which bond is completely paid off - it may be prior to or equal to the maturity date 6-1 Bond Types: Coupon bonds - borrower makes periodic payments (coupons) to lender until redemption at which time an additional redemption payment is also made - no periodic payments, redemption payment includes original loan principal plus all accumulated interest Convertible bonds - at a future date and under certain specified conditions the bond can be converted into common stock Other Securities: Preferred Stock - provides a fixed rate of return for an investment in the company. It provides ownership rather that indebtedness, but with restricted ownership privileges. It usually has no maturity date, but may be callable. The periodic payments are called dividends. Ranks below bonds but above common stock in security. Preferred stock is bought and sold at market price. 6-2 Common Stock - an ownership security without a fixed rate of return on the investment. Common stock dividends are paid only after interest has been paid on all indebtedness and on preferred stock. The dividend rate changes and is set by the Board of Directors. Common stock holders have true ownership and have voting rights for the Board of Directors, etc. -
Investments 101: Fixed Income & Public Equities
NCPERS Trustee Education Seminar FIXED INCOME 101 May 14, 2016 Steve Eitel Senior Vice President Senior Institutional Client Advisor [email protected] 312-384-8259 What is a bond or fixed income security • A bond represents a loan to a government or business • Fixed income securities are debt obligations promising a series of pre-specified payments at pre-determined points in time Investor Loans $1000 Annual Interest Payments Company XYZ Repayment of Initial $1000 Loan at Maturity What Does the Global Bond Market Look Like? • U.S. makes up a little over a 1/3rd of the global bond market • Global bond market as of June 30, 2014 was approximately $87.2T according to the Bank of International Settlements statistical annex. Types of Bonds Government Bonds • Governments and Instrumentalities issue debt obligations to investors • Proceeds are used to finance the operation of the U.S. government • Types of Government securities include: - U.S. Treasury Bills, Notes, Bonds, Inflation-Protected Securities (TIPs), Zero Coupons - U.S. Agency Obligations/Government Sponsored Entities (GSE’s) - Federal National Mortgage Association (FNMA/Fannie Mae) - Federal Home Loan Mortgage Association (Freddie Mac) - Federal Farm Credit Bank (FFCB) - Federal Home Loan Bank (FHLB) - Tennessee Value Authority (TVA) - Small Business Association (SBA) - Direct U.S. Backed Agency - Government National Mortgage Association (GNMA/Ginnie Mae) - Foreign Government Issuers Types of Bonds Corporate Bonds • Corporations issue fully taxable debt obligations to investors • Proceeds are used to refinance existing bonds, fund expansions, mergers and acquisitions, fund operations, fund research and development • Types of Corporate debt securities include: - Secured Debt: backed by a specific pledged asset/collateral - Unsecured Debt: aka Debentures; backed by good faith and credit of borrower - Yankee bonds: foreign corporations issuing bonds in the U.S. -
3. VALUATION of BONDS and STOCK Investors Corporation
3. VALUATION OF BONDS AND STOCK Objectives: After reading this chapter, you should be able to: 1. Understand the role of stocks and bonds in the financial markets. 2. Calculate value of a bond and a share of stock using proper formulas. 3.1 Acquisition of Capital Corporations, big and small, need capital to do their business. The investors provide the capital to a corporation. A company may need a new factory to manufacture its products, or an airline a few more planes to expand into new territory. The firm acquires the money needed to build the factory or to buy the new planes from investors. The investors, of course, want a return on their investment. Therefore, we may visualize the relationship between the corporation and the investors as follows: Capital Investors Corporation Return on investment Fig. 3.1: The relationship between the investors and a corporation. Capital comes in two forms: debt capital and equity capital. To raise debt capital the companies sell bonds to the public, and to raise equity capital the corporation sells the stock of the company. Both stock and bonds are financial instruments and they have a certain intrinsic value. Instead of selling directly to the public, a corporation usually sells its stock and bonds through an intermediary. An investment bank acts as an agent between the corporation and the public. Also known as underwriters, they raise the capital for a firm and charge a fee for their services. The underwriters may sell $100 million worth of bonds to the public, but deliver only $95 million to the issuing corporation. -
BASIC BOND ANALYSIS Joanna Place
Handbooks in Central Banking No. 20 BASIC BOND ANALYSIS Joanna Place Series editor: Juliette Healey Issued by the Centre for Central Banking Studies, Bank of England, London EC2R 8AH Telephone 020 7601 3892, Fax 020 7601 5650 December 2000 © Bank of England 2000 ISBN 1 85730 197 8 1 BASIC BOND ANALYSIS Joanna Place Contents Page Abstract ...................................................................................................................3 1 Introduction ......................................................................................................5 2 Pricing a bond ...................................................................................................5 2.1 Single cash flow .....................................................................................5 2.2 Discount Rate .........................................................................................6 2.3 Multiple cash flow..................................................................................7 2.4 Dirty Prices and Clean Prices.................................................................8 2.5 Relationship between Price and Yield .......................................................10 3 Yields and Yield Curves .................................................................................11 3.1 Money market yields ..........................................................................11 3.2 Uses of yield measures and yield curve theories ...............................12 3.3 Flat yield..............................................................................................12 -
The Use of Credit Default Swaps by U.S. Fixed-Income Mutual Funds
Sanjiv R. Das FDIC Center for Financial Research Darrell Duffie Working Paper Nikunj Kapadia No. 2011-01 Empirical Comparisons and Implied Recovery Rates The Use of Credit Default Swaps by U.S Fixed-Income Mutual Funds Risk-Based Capital Standards, kkk Deposit Insurance and Procyclicality November 19, 2010 Risk-Based Capital Standards, Deposit Insurance and Procyclicality An Empirical September 2005 An Empirical Analysis Federal Dposit Insurance Corporation •Center for Financial Researchh State- May, 2005 Efraim Benmel Efraim Benmelech June 20 May , 2005 Asset S2005-14 The Use of Credit Default Swaps by U.S. Fixed-Income Mutual Funds Tim Adam, Humboldt University* and Risk Management Institute (Singapore) Andre Guettler, University of Texas at Austin and EBS Business School† November 19, 2010 Abstract We examine the use of credit default swaps (CDS) in the U.S. mutual fund industry. We find that among the largest 100 corporate bond funds the use of CDS has increased from 20% in 2004 to 60% in 2008. Among CDS users, the average size of CDS positions (measured by their notional values) increased from 2% to almost 14% of a fund’s net asset value. Some funds exceed this level by a wide margin. CDS are predominantly used to increase a fund’s exposure to credit risks rather than to hedge credit risk. Consistent with fund tournaments, underperforming funds use multi-name CDS to increase their credit risk exposures. Finally, funds that use CDS underperform funds that do not use CDS. Part of this underperformance is caused by poor market timing. JEL-Classification: G11, G15, G23 Keywords: Corporate bond fund, credit default swap, credit risk, fund performance, hedging, speculation, tournaments * Humboldt University, Institute of Corporate Finance, Dorotheenstr. -
Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates
Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates Luis M. Viceira1 Forthcoming International Journal of Forecasting This draft: January 2010 Abstract This paper explores time variation in bond risk, as measured by the covariation of bond returns with stock returns and with consumption growth, and in the volatility of bond returns. A robust stylized fact in empirical finance is that the spread between the yield on long-term bonds and short-term bonds forecasts positively future excess returns on bonds at varying horizons, and that the short-term nominal interest rate forecasts positively stock return volatility and exchange rate volatility. This paper presents evidence that movements in both the short-term nominal interest rate and the yield spread are positively related to changes in subsequent realized bond risk and bond return volatility. The yield spread appears to proxy for business conditions, while the short rate appears to proxy for inflation and economic uncertainty. A decomposition of bond betas into a real cash flow risk component, and a discount rate risk component shows that yield spreads have offsetting effects in each component. A widening yield spread is correlated with reduced cash-flow (or inflationary) risk for bonds, but it is also correlated with larger discount rate risk for bonds. The short rate forecasts only the discount rate component of bond beta. JEL classification:G12. 1Graduate School of Business Administration, Baker Libray 367, Harvard Univer- sity, Boston MA 02163, USA, CEPR, and NBER. Email [email protected]. Website http://www.people.hbs.edu/lviceira/. I am grateful to John Campbell, Jakub Jurek, André Per- old, participants in the Lisbon International Workshop on the Predictability of Financial Markets, and especially to two anonymous referees and Andréas Heinen for helpful comments and suggestions. -
1. Securities Markets, Investment Securities, and Economic Factors
1. Securities Markets, Investment Securities, and Economic Factors What is a Security Investment of Money In pooled interest With expectation of Profit Managed by third party 2 primary types, and a third major; Equity (Ownership) Bonds (Debt) Money Markets (specific short term debt) There are others, those are the biggies, including Variable Insurances. Updated: August 2017 Equity Common Stock Primarily capital appreciation Voting rights Potential dividends Lowest liquidation claims in bankruptcy Preemptive Rights Round Lots (100) Updated: August 2017 Cumulative Voting Allocate all votes any way, including all for 1, benefits small owners. Statutory Voting Can allocate 1 vote per share per seat, benefits large owners. Updated: August 2017 Preferred stock Stated interest rate on certificate Higher liquidation claims in bankruptcy than common stock No voting No proportional ownership rights Par Value $100 Attachments; Straight Preferred: Nothing other than stated rate if BOD declares dividend. Callable: Issuer can force investor to sell the security to them. Higher stated return than straight. Convertible: Investor can convert the security into common shares. Lower stated return than straight. 100/(Conversion Factor)=(Number of Shares). Participating: If BOD declares larger dividend, this preferred gets larger dividend. Lower stated return than straight Cumulative: If dividends missed, all missed dividends must be paid to cumulative preferred owners before anyone else gets new dividend. Lower stated return than straight. Updated: August 2017 Broker/Dealer Updated: August 2017 Bonds/Debt Needed Definitions Par Face amount, amount paid on maturity, for bonds is $1000. ($100 for preferred stock) Coupon Stated interest rate, or nominal yield printed on the Certificate. -
Connecticut Ladder 1 to 5 Year Municipal Fixed Income Sample Portfolio August 9, 2021
Connecticut Ladder 1 to 5 Year Municipal Fixed Income Sample Portfolio August 9, 2021 % of Sample Bonds Sample Portfolio Characteristics S&P Rating ^ Portfolio Sample Portfolio Sector Allocation (Bonds Only) Only (Bonds Only) LD1-5CTNETAVERAGE ASSETS EFFECTIVE DURATION (YRS) 2.62 AAA 40.3% LD1-5CTNETAVERAGE ASSETS MATURITY/LIFE (YRS) 2.82 AA 49.6% LD1-5CTNETAVERAGE ASSETS COUPON (%) 4.81 A 10.1% LD1-5CTNETAVERAGE ASSETS CURRENT YIELD(%) 4.29 BBB 0.0% LD1-5CTNETAVERAGE ASSETS YIELD TO WORST(%) 0.24 NR 0.0% LD1-5CTNETAVERAGE ASSETS YIELD TO MATURITY(%) 0.24 AVERAGE TAX EQUIVALENT YIELD TO WORST (%) 0.40 AVERAGE TAX EQUIVALENT YIELD TO MATURITY (%) 0.40 Revenue 40% General Sample Portfolio Representation Bond Holdings Obligation Yield to 60% Effective Moody's S&P Description Coupon (%) Maturity Price ($) Worst Duration Rating Rating 0 (%) 1LD1-5CTMunicipalsTEXAS TRANSN COMMN ST HWY FD R 5.000 04/01/22 103.15 0.63 years 0.08 Aaa AAA 2LD1-5CTMunicipalsNORTH CAROLINA ST LTD OBLIG 5.000 06/01/22 103.98 0.80 years 0.07 Aa1 AA+ 3LD1-5CTMunicipalsUNIVERSITY CONN 5.000 02/15/23 107.28 1.45 years 0.19 Aa3 A+ 4LD1-5CTMunicipalsMASSACHUSETTS ST TRANSN FD REV 5.000 06/01/23 108.86 1.74 years 0.10 Aa1 AA+ 5LD1-5CTMunicipalsCHANDLER ARIZ 5.000 07/01/24 114.04 2.73 years 0.14 Aaa AAA 6LD1-5CTMunicipalsWEST HARTFORD CONN 5.000 10/01/24 115.13 2.92 years 0.17 NR AAA 7LD1-5CTMunicipalsBLOOMFIELD CONN 5.000 01/15/25 116.03 3.21years 0.30 NR AA+ 8LD1-5CTMunicipalsNEW YORK N Y 4.000 08/01/25 114.49 3.73 years 0.33 Aa2 AA Sample Portfolio Duration Distribution (Bonds Only) 9LD1-5CTMunicipalsBROOKFIELD CONN 4.000 08/15/26 117.48 4.48 years 0.47 NR AAA 10LD1-5CTMunicipalsENFIELD CT 5.000 08/01/26 121.99 4.52 years 0.52 NR AA 11LD1-5CTMunicipals 12LD1-5CTMunicipals 100% 13LD1-5CTMunicipals 90% 14LD1-5CTMunicipals 15LD1-5CTMunicipals 80% 16LD1-5CTMunicipals 70% 17LD1-5CTMunicipals 18LD1-5CTMunicipals 60% 19LD1-5CTMunicipals 50% 20LD1-5CTMunicipals 39.79% 40.45% 40% 30% 19.75% 20% 10% 0.00% 0% 0-2 2-4 4-6 >6 Years MASH0421U/S-1585094-1/2 Source: BlackRock, Bloomberg, Reuters. -
12. the Current Yield Curve for Default-Free Zero-Coupon Bonds Is
12. The current yield curve for default-free zero-coupon bonds is as follows: Years to Maturity YTM 1 10% 2 11% 3 12% a) What are the implied one-year forward rates? Obtain forward rates from the following table: Maturity Forward YTM Price (Years) Rate 1 10% 909.09 2 11% 12.01% 811.62 3 12% 14.03% 711.78 b) Assume the pure expectations hypothesis is correct. If market expectations are correct, what will the yield curve on one- and two-year zero-coupon bonds be next year? Maturity (Years) Price YTM 1 1000/1.1201 12.01% 2 1000/[1.1201*1.1403] 13.02% c) If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? What if you purchase a three-year zero- coupon bond? Next year, the 2-year zero will be a 1 year zero, and will sell at 892.78; likewise, the 3-year zero will be a 2-year zero trading at 782.93. Expected total rate of return: 2-Year: (892.78/811.62) – 1 = 10% 3-Year: (782.93/711.78) – 1 = 10% d) What should be the current price of a three-year maturity bond with a 12% coupon rate paid annually? If you purchased it at that price, what would your total expected rate of return be over the next year? The current price of the bond should equal the value of each payment times the present value of $1 to be received at the maturity of that payment. -
Hicks-Arrow Prices for US Federal Debt 1791-1930
Costs of Financing US Federal Debt: 1791-1933∗ George Hall,† Jonathan Payne,‡ Thomas J. Sargent,§ Bálint Szőke¶ August 26, 2021 Abstract We use computational Bayesian methods to estimate parameters of a statistical model of gold, greenback, and real yield curves for US federal debt from 1791 to 1933. Posterior probability coverage intervals indicate more uncertainty about yields during periods in which data are especially sparse. We detect substantial discrepancies between our approximate yield curves and standard historical series on yields on US federal debt, especially during War of 1812 and Civil War surges in government expenditures that were accompanied by units of account ambiguities. We use our approximate yield curves to describe how long it took to achieve Alexander Hamilton’s goal of reducing default risk premia in US yields by building a reputation for servicing debts as promised. We infer that during the Civil War suspension of convertibility of greenback dollars into gold dollars, US creditors anticipated a rapid post war return to convertibility at par, but that after the war they anticipated a slower return. JEL classification: E31, E43, G12, N21, N41 Key words: Big data, default premia, yield curve, units of account, gold standard, government debt, Hamil- tonian Monte Carlo, Julia, DynamicHMC.jl, pricing errors, specification analysis. ∗We thank Clemens Lehner for outstanding research assistance and Min Wei and audiences at the Minnesota Workshop in Macroeconomic Theory and a University of Sydney seminar for suggestions. The views expressed here are those of the authors and do not necessarily represent the views of the Federal Reserve Board or its staff. -
Chapter 10 Bond Prices and Yields Questions and Problems
CHAPTER 10 Bond Prices and Yields Interest rates go up and bond prices go down. But which bonds go up the most and which go up the least? Interest rates go down and bond prices go up. But which bonds go down the most and which go down the least? For bond portfolio managers, these are very important questions about interest rate risk. An understanding of interest rate risk rests on an understanding of the relationship between bond prices and yields In the preceding chapter on interest rates, we introduced the subject of bond yields. As we promised there, we now return to this subject and discuss bond prices and yields in some detail. We first describe how bond yields are determined and how they are interpreted. We then go on to examine what happens to bond prices as yields change. Finally, once we have a good understanding of the relation between bond prices and yields, we examine some of the fundamental tools of bond risk analysis used by fixed-income portfolio managers. 10.1 Bond Basics A bond essentially is a security that offers the investor a series of fixed interest payments during its life, along with a fixed payment of principal when it matures. So long as the bond issuer does not default, the schedule of payments does not change. When originally issued, bonds normally have maturities ranging from 2 years to 30 years, but bonds with maturities of 50 or 100 years also exist. Bonds issued with maturities of less than 10 years are usually called notes.