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Special Report on

Reinvestment Rate Risk

reinvestment rate risk special research report Photo by
The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixed-income securities with different durations) or hedging (e.g. through an interest rate swap). Investopedia Says : Interest rate risk affects the value of bonds more directly than stocks, and it is a major risk to all bondholders. As interest rates rise, bond prices fall and vice versa. The rationale is that as ...
for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one on the right which is informally called "the yield curve." More formal mathematical descriptions of this relation are often called the term structure of interest rates . The yield of a debt instrument is the overall rate of return available on the investment. For instance, a bank account that pays an interest rate of 4% per year has a 4% yield. In general the percentage per year that can be earned is dependent on the length of time that the money is invested. For example, a bank may offer a "savings ...
Should you invest in US bonds? Part 2
Recall that a bond’s price is the present value of its coupons (if any) and face value (or principal or par value).  Let’s keep things simple for now and assume a zero-coupon or “discount” bond. One thing of interest to note first: As we move forward in time from the issue date toward the maturity date, and the number of periods between now and the maturity date falls, the price of a discount bond rises toward the face value of the bond, even with no changes in the interest rate.  At maturity, the price of the bond equals the face value. Only unexpected changes in the effective return on a bond can change the natural upward ... market research, surveys and trends
Ευρετηριο Οικονομικων Ορων: Ομολογία (bond)
Τα ομόλογα είναι μακροπρόθεσμα χρεόγραφα που εκδίδονται είτε από το Δημόσιο είτε από ιδιωτικούς οργανισμούς (πχ τράπεζες, επιχειρήσεις κλπ), και χρησιμοποιούνται για τον δανεισμό κεφαλαίων από το επενδυτικό κοινό. Στις περισσότερες χώρες του κόσμου υπάρχουν καλά οργανωμένες δευτερογενείς αγορές για τα χρεόγραφα αυτά, γεγονός που προσθέτει σημαντική ρευστότητα στην αγορά και τα κάνει ακόμα πιο ελκυστικά στον επενδυτή. Μέχρι πρόσφατα τα ομόλογα ήταν χρηματοοικονομικά προϊόντα με σχετικά εύκολη αποτίμηση και θεωρούνταν επενδύσεις χαμηλού κινδύνου και απόδοσης, επειδή η διάρκεια ζωής τους ήταν δεδομένη και επειδή συνήθως ... market research, surveys and trends


Derivatives, mergers, multinational finance
2. An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n) a. Call option. b. Put option. c. Out-of-the-money option. d. Naked option. e. Covered option. 3. There are call options on the common stock of XYZ Corporation.  Which of the following best describes the factors affecting the value of these call options? a. The price of the call options is likely to rise if XYZ's stock price rises. b. The higher the strike price on the call option, the higher the call option price. c. Assuming the same strike price, a call option which expires in one month ... industry trends, business articles and survey research
The McKinsey Quarterly 2005 special edition: Value and performance 70
comparison of, say, the 30 percent annual return of a specific project with ... million. Year 5 value of $10 million investment . $29 million .... cash flows completely immunizes a project from the reinvestment-rate risk. ... industry trends, business articles and survey research
The First of Long Island Corporation Announces Increase in Earnings for the ...
earned $1.31 per share for the first half of 2010, an increase of $.30, or 29.7%, over $1.01 per share earned in the same period last year. Net income increased by $2,287,000, or 31.2%, from $7,336,000 for the first half of 2009 to $9,623,000 for the current six month period. Returns on average assets (ROA) and equity (ROE) were 1.19% and 15.90%, respectively, for the first six months of 2010 as compared to 1.14% and 13.85% for the same period last year. Earnings for the second quarter of 2010 were $.68 per share versus $.63 per share for the first quarter. The increase for the quarter is primarily attributable to an increase in ... market trends, news research and surveys resources
Housing Gets Sick on Keynesian Roller Coaster: Kevin Hassett
July 12 (Bloomberg) -- New home sales data have been gathered by the U.S. Census Bureau since the early 1960s. In May, they dropped to their lowest level in recorded history, increasing the risk of the dreaded double-dip recession. The collapse coincided with the expiration of the federal tax credit for homebuyers in late April that Keynesians told us would restore stability to housing markets. On July 2, President Barack Obama signed legislation that extends the period in which the credit can be claimed until September, and many Democrats are clamoring for the credit itself to be extended as well. Many nonpartisan economists ... market trends, news research and surveys resources


Laddered Bond Portfolios
the bond's life. Reinvestment Rate Risk. Reinvestment rate risk is the risk that you will not be .... The strategy also smoothes out reinvestment rate risk ... technology research, surveys study and trend statistics
Interest-Rate Risk - Partnership for Progress
Many minority bank officials have indicated that interest-rate risk is a critical element that should be managed well, particularly if a bank aggressively offers the most favorable rates in order to meet its community's needs as part of its long-term mission. For a general overview, please review Interest-Rate Risk in Manage Transition. The board and senior management are responsible for understanding the nature and level of interest-rate risk being taken by the bank and how that risk fits within the overall business strategies of the bank. They are also responsible for ensuring that the formality and sophistication of the ... technology research, surveys study and trend statistics
"Risk is uncertainty, and in uncertainty lies opportunity. Without uncertainty, there's little chance to profit." Lorayne Fiorillo, author of Financial Fitness in 45 Days     Types of general investment risk Market Risk: This is when stock or bond prices drop and you appear to lose money on your investment. However, most losses are sustained over the short term of a year or less. As long as you don't sell, your investment will have the chance to recover from price declines and earn you a greater profit. Inflation Risk: The risk that the rising costs of inflation will ...
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WikiAnswers - What are the advantages of reinvestment rate risk ...
Reinvestment risk When interest rates are declining, investors have to reinvest their interest income and any return of principal, whether scheduled or unscheduled, at lower prevailing rates.Interest... What are the disadvantages and advantages of interest rates ? Interest rates are generally applied to cover the collateral risk of defaulting loans. A borrower is compensating the lender for the length of time that money is held - money that the lender could... What are the advantages of a lower interest rate ? When you borrow money - either loan, overdraft, credit card etc..... - you will not be paying back as much interest. ...
WikiAnswers - In what sense is a reinvestment rate assumption ...
In what sense is a reinvestment rate assumption embodied in the npv irr and mirr methods what is the assumed reinvestment rate of each method? IRR assumes that all cash flows are reinvested at the project's rate of return, seldom a defensible assumption. Since NPV discounts future cash flows at the investor's cost of capital, it more accurately represents the value of a project. It assumes that cash flows are reinvested at the cost of capital. This is a good assumption so long as the financing can be repaid in stages so as to reduce interest or equity cost. MIRR enables a project to be described with the simplicity of ...