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Portfolio Report: Week 4

* Fixed Income * Japan’s Central Bank has instituted negative interest rates. It’s now the fifth major central bank to do so. * The Fed met after Japan’s decision and released a more conservative statement compared to their earlier actions of this year so far. * Treasury yields were down especially for the 5 and 10 year treasuries. * Last week the fed committee had a meeting and one of the biggest things that was observed from the meeting was that the committee will monitor global and economic development due to the recent uncertainty of potential global growth. * The fed had a general outlook for increasing interest rates, but for now they will be looking at income as a performance driver in the market. * Puerto Rico came up with a plan on Monday to reduce its debt by approximately 46%. Not many details about the plan were released, but from what we have found its obvious and of great importance to have great and high level of participation for all involved. Puerto Rico has by May first to pay the a large debt service payment.

* FX * Preliminary Q4 earnings of Great Britain’s GDP indicated a .5% growth, totalling to 2.2% growth for the full year. * British exit from the European Union more likely as British voters fear immigration and instability of the EU. * The European Central Bank remains under pressure from financial markets to provide even more monetary stimulus. The preliminary estimate of December inflation showed rates of .4% for annual inflation, compared to .2% back in November. * EUR/USD is currently trading at the same levels as last week. * The South African Reserve Bank hiked policy rates to .5% after a divided vote at the Monetary Policy Committee meeting. The SARB is aiming to control…...

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...Lab 7 VBA Fixed Income Financial Model ------------------------------------------------- In this lab, you will start to build VBA application related to Fixed Income Financial Model Part 1: Commonly Used Financial Functions There are many EXCEL functions that you may use in FI Financial Modeling. In this lab, we explore the following functions: 1. RATE 2. PV 3. PRICE 4. YIELD 1. RATE The Rate function calculates the interest rate required to pay off a specified amount of a loan, or reach a target amount on an investment, over a given period. Alternately, it calculates the return you will have to earn in order to accumulate a certain amount of money by making a number of equal periodic investments. The syntax of the function is: RATE( nper, pmt, pv, [fv], [type], [guess] ) Where the arguments are as follows: nper | The number of periods over which the loan or investment is to be paid | pmt | The (fixed) payment amount per period | pv | The present value of the loan / investment | [fv] | An optional argument that specifies the future value of the loan / investment, at the end of nper payments . If omitted, [fv] takes on the default value of 0 | [type] | An optional argument that defines whether the payment is made at the start or the end of the period The [type] argument can have the value 0 or 1, meaning: 0 - the payment is made at the end of the period 1 - the payment is made at the beginning of the period If the......

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...Understanding Fixed Interest in a Portfolio Fixed interest securities should play a crucial defensive role in a balanced investment portfolio, providing predictable, regular income and acting as a foil against the losses made on equity holdings during times of economic downturn. However, a poorly constructed defensive allocation will fail in meeting those objectives in times of market turmoil, as demonstrated in recent years. Not all assets that have been labelled fixed income are “true to label”, and furthermore, not even all bonds are made equal. Advisers need to be aware that some are inherently much more risky than others, and others are just not fit for purpose if the objective is to create a safe, predictable source of income that also diversifies a portfolio’s equity risk. FIXED INTEREST/BONDS – A DEFINITION Broadly, a bond can be defined as any debt instrument issued by a government/quasi-government entity or company/special purpose vehicle. In effect a bond is a commoditised, tradable loan where an investor provides capital in exchange for a legally enforceable promise by the issuer to pay the investor regular interest over a fixed period of time and principal at maturity. Naturally, the ability to enforce payment will be a function of the solvency of the borrower. Therefore, assessing credit quality is vital in fixed interest investing. High quality issuers generally fund at lower yields whereas higher yields are paid by issuers of lower credit quality due to...

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...Fixed Income Securities Tools for Today’s Markets Second Edition BRUCE TUCKMAN John Wiley & Sons, Inc. Copyright © 2002 by Bruce Tuckman. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: permcoordinator@wiley.com. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and speciﬁcally disclaim any implied warranties of merchantability or ﬁtness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and......

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...Fixed-Income Portfolio Selection Kay Giesecke∗ and Jack Kim† Stanford University June 29, 2009; this draft January 11, 2012‡ Abstract The equity portfolio selection problem is the subject of a substantial literature. Though equally important in practice, the selection problem for a ﬁxed-income portfolio of corporate and government bonds, industrial loans and credit derivatives, is less well-understood. The ﬁxed-income portfolio problem presents unique challenges: the risk of issuer default induces skewed return distributions, the correlation of defaults inﬂuences the tail of the portfolio return distribution, and credit derivative positions have complex risk/return implications. This paper addresses the static selection problem for a ﬁxed-income portfolio. We optimize the total mark-to-market value of the portfolio at the investment horizon. This value incorporates the intermediate premium and default cash ﬂows of long and short cash and derivative positions, and the survival-contingent market value of these positions at the horizon. The selection problem is cast as a polynomial goal program that involves a two-stage constrained optimization of preference weighted moments of the portfolio mark-to-market. The decision variable is the vector of contract notionals. A capital constraint guarantees the solvency of the investor. The multi-moment formulation addresses the non-Gaussian distribution of the portfolio mark-tomarket. It is also computationally tractable, because we......

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