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Bonds All-In-One Cheat Sheet, Cheat Sheet of Finance

All-In-One Cheat Sheet about bonds for your Finance exam

Typology: Cheat Sheet

2019/2020

Uploaded on 11/27/2020

johnatan
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Bonds Cheat Sheet
by irishbear44 via cheatography.com/66448/cs/19297/
Glossary
Bond A Debt instrument
Bond
Issuers
US Government, US Agencies,
Municipalities, Corporations
Coupon
Rate
Amount of interest that a bond
issuer promises to pay
investors
Current
Yield
Bond Coupon divided by
bond’s coupon by its market
price.
Discount Market Price is LESS than its
Par Value
Duration Calculated using the average
weighted maturity of all the
cash flows associated with the
bond; used as a measure of
how sensitive a bond’s price is
to interest rate movement
Maturity
Date
Date when a bond’s life ends
and the borrower must make
the final interest payment and
repay the principal.
Par
Value
Face value of a bond, which the
borrower repays at maturity.
Principal Amount of money on which
interest is paid
Premium Market Price is GREATER than
its Par Value
Yield to
Maturity
1. Annual rate of return on a
bond when it is held to maturity,
assuming that all coupon
receipts are reinvested at the
Yield to Mat. 2. Discount factor
that makes Present Value of
Interest Payments equal to the
current bond price.
Treasurer’s Primary Activities
Manage Securities Portfolio
Manage Liquidity and Interest Rate Risk
Obtain Wholesale Funding
Maintain Adequate Collateral
Security Type
U.S. Treasury
Bills/Notes/Bonds
Lowest credit risk/l
owest yield of all
securities. Only
acceptable form of
pledging collateral
Agency Bonds Issued by Federal
Government
Agencies
Implicit U.S.
Guarantees
FNMA: slightly lower
credit rating and
slightly higher yield
than Treasuries
GNMA: Mortgage
Backed Securities
(“MBS”)
Higher yield due to
prepayment risk
Qualify as “mortgage
related asset” for
FHLB advance eligib
ility
Municipal Bonds
(“Munis”)
Bonds issued by
State and Local
Governments Varying
degrees of credit risk
Tax Free interest Tax
Equivalent Yield =
Yield / (1-Tax Rate)
When available,
Purchases limited to
10% of Par Value
Outstanding
Asset Backed
Securities (ABS)
Securitized loans
pools Credit Card Car
Loan Outstanding
bonds of various
terms and credit
ratings Fixed rate
Variable rate LIBOR
Fed Funds
Wholesale Funding
Jumbo
CDs
<i class="fas fa-caret-right">
</i>
Why Buy/Sell Securities?
Manage the Bank's Liquidity position
Improve the Portfolio Yield
Realize Capital Gains or avoid future
Losses
Manage Collateral supply
Mitigate Credit and Prepayment Risk
Adjust the Bank's Interest Rate Risk
Purchase/Sale Decision Factors
Yield Curve Changers
Interest Rates/Economic Cycle
Duration
Collateral Needs
FHLB Borrowing Eligibility
Bank's Asset Yield/NIM Impact
CRA Needs
Credit Risk
Balance Sheet Structure
Duration
Duration is
impacted by
Coupon and
Maturity
All things considered
equal, a Bond will have
a higher Duration the:
Smaller the Coupon
Longer the Maturity
Duration of a
Floating Rate
Instrument
Equal to the Rate
Adjustment period
A higher
Duration portfolio
will have greater
volatility
Rising rates will result
in lower market value
and unrealized losses
You can rapidly change the Bank's Asset
Duration by selling high Duration bonds and
replacing them with low Duration bonds
(and vice versa)
Bond Price See Saw

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Bonds Cheat Sheet

by irishbear44 via cheatography.com/66448/cs/19297/

Glossary Bond A Debt instrument Bond Issuers US Government, US Agencies, Municipalities, Corporations Coupon Rate Amount of interest that a bond issuer promises to pay investors Current Yield Bond Coupon divided by bond’s coupon by its market price. Discount Market Price is LESS than its Par Value Duration Calculated using the average weighted maturity of all the cash flows associated with the bond; used as a measure of how sensitive a bond’s price is to interest rate movement Maturity Date Date when a bond’s life ends and the borrower must make the final interest payment and repay the principal. Par Value Face value of a bond, which the borrower repays at maturity. Principal Amount of money on which interest is paid Premium Market Price is GREATER than its Par Value Yield to Maturity

  1. Annual rate of return on a bond when it is held to maturity, assuming that all coupon receipts are reinvested at the Yield to Mat. 2. Discount factor that makes Present Value of Interest Payments equal to the current bond price. Treasurer’s Primary Activities Manage Securities Portfolio Manage Liquidity and Interest Rate Risk Obtain Wholesale Funding Maintain Adequate Collateral Security Type U.S. Treasury Bills/Notes/Bonds Lowest credit risk/l‐ owest yield of all securities. Only acceptable form of pledging collateral Agency Bonds Issued by Federal Government Agencies Implicit U.S. Guarantees FNMA: slightly lower credit rating and slightly higher yield than Treasuries GNMA: Mortgage Backed Securities (“MBS”) Higher yield due to prepayment risk Qualify as “mortgage related asset” for FHLB advance eligib‐ ility Municipal Bonds (“Munis”) Bonds issued by State and Local Governments Varying degrees of credit risk Tax Free interest Tax Equivalent Yield = Yield / (1-Tax Rate) When available, Purchases limited to 10% of Par Value Outstanding Asset Backed Securities (ABS) Securitized loans pools Credit Card Car Loan Outstanding bonds of various terms and credit ratings Fixed rate Variable rate LIBOR Fed Funds Wholesale Funding Jumbo CDs Why Buy/Sell Securities? Manage the Bank's Liquidity position Improve the Portfolio Yield Realize Capital Gains or avoid future Losses Manage Collateral supply Mitigate Credit and Prepayment Risk Adjust the Bank's Interest Rate Risk Purchase/Sale Decision Factors Yield Curve Changers Interest Rates/Economic Cycle Duration Collateral Needs FHLB Borrowing Eligibility Bank's Asset Yield/NIM Impact CRA Needs Credit Risk Balance Sheet Structure Duration Duration is impacted by Coupon and Maturity All things considered equal, a Bond will have a higher Duration the:  Smaller the CouponLonger the Maturity Duration of a Floating Rate Instrument Equal to the Rate Adjustment period A higher Duration portfolio will have greater volatility Rising rates will result in lower market value and unrealized losses You can rapidly change the Bank's Asset Duration by selling high Duration bonds and replacing them with low Duration bonds (and vice versa) Bond Price See Saw