Lecture 1: Course Intro & the BasicsDr. Eleanor Denny

Investment Analysis I

Introduction� Course outline

�Fixed Income Securities� Bonds, yields etc� Term structure interest rates� Managing bond portfolios

�Options and other derivatives� Options markets� Option valuation� Futures and Swaps

Resources� Bodie, Z., Kane, A., and Marcus

A.J. (2008), Investments, McGraw-Hill.

� Hull, J. (2008), “Options, Futures and other Derivatives”, Prentice Hall.

Lecture material� Slides vs blackboard

� WebCT

� Other resources�Reading material�Twitter: Investment3050

Course and Assessment� Two lectures per week

� Monday 5pm in McNeill3 in Hamilton Building� Wednesday 4050B (Arts building)

� Four tutorials in total � dates: 7 Oct, 21 Oct, 18 Nov, 9 Dec

� Quizzes/MCQs etc. � Guest lectures� One hand in exercise – 15% of final mark� Final exam – 70% of total

Me!� Office hours 11am – 1pm Mondays

�Outside office hours make an appointment

�Room 3016

� dennye@tcd.ie

The course in one sentence …

Investment analysis – sacrifice something of value now, expecting to benefit from that sacrifice later.

Course ContextAssets

Today’s lecture

� Fixed-Income securities i.e. Bonds

� ‘Investments’ chapter 14

Bonds

What is a bond?� IOU� Specified payments on specified dates� Coupon bond indenture

�Coupon payments

�Par (face) value�Maturity date

� Zero coupon bonds

Who issues bonds?� Governments� Companies� Local governments – municipal bonds� International bonds

�Foreign – yankee, samurai, bulldog

�Eurobonds, eurodollars, euroyen

http://www.ft.com/bonds&rates

Discount bond

Premium bond

Par

� The NTMA intends to issue €20 billion of Irish Government bonds in 2010.

� The bonds will be issued by means of eleven bond auctions to be held on the third Tuesday of each month, commencing on 19 January.

� In each auction, up to two bonds may be offered and the NTMA envisages auction sizes in the range of €1 billion to €1.5 billion.

14-01-2010

http://markets.ft.com/markets/bonds.asp

Other bonds� Other bonds

�Floaters and Inverse floaters

�Asset backed bonds�Catastrophe bonds

� Indexed bonds (TIPS)

� Call provisions� Convertible bonds� Puttable bonds

Bond pricing

� Formula

� What happens when r increases?

Bond prices & Interest rate� 8% coupon bond, 30yr maturity, semi-annual repayments

Quick Recap!� Bonds – IOU

�Coupon

�Maturity date�Par value

� Value (Price of Bond) is present value of future payments�Coupons + Par Value�Discount rate