1) II you buy a bond in the secondary market, what does the term YTM mean?

Ans:
O hat are bonds?
IOU corporation, government, or governmental agency
6uity- Part owner: Bond- Cerditor
U.S. Treasury issues come in several maturities and denominations. Other U.S.
agencies issue bonds to Iund such things as mortgages and other government
programs.
Municipal governments also issue bonds, which they oIten use to build roads or
perIorm other inIrastructure projects.

O hy Bonds?
AIloat in diIIicult times
Tax beneIits
U.S. Treasury Bonds are the most secure investments in the world because the U.S.
Government backs them with its "Iull Iaith and credit."
O Basic bond concepts: Par value, Coupon rate & Maturity
O Interest rates and Bond prices
O Bond Yields: Nominal, Current & YTM
O YTM
This includes interest over the liIe oI the bond, plus any gain or loss you may incur
based on whether you purchased the bond above or below par, excluding taxes
The yield to maturity makes it easier to compare various bonds.

The yield to maturity Iormula is used to calculate the yield on a bond based on its
current price on the market. The yield to maturity Iormula looks at the eIIective yield
oI a bond based on compounding as opposed to the simple yield which is Iound using
the dividend yield Iormula.
The price oI a bond is $920 with a Iace value oI $1000 which is the Iace value oI
many bonds. Assume that the annual coupons are $100, which is a 10 coupon rate,
and that there are 10 years remaining until maturity. Lhe esLlmaLed yleld Lo maLurlLy ls
1123



2) hat is yield Iunction in excel do? hat inputs to be Ied in?

Yield Iunction oI excel returns the yield on a security that pays periodic interest.

Yield (Settlement, Maturity, Rate, Pr, Redemption, Fre6uency)

Inputs:
1. Settlement: Settlement is security`s settlement date, expressed as a serial date number.
2. Maturity: Maturity is security`s matrity date, expressed as a serial date number.
3. Rate: Rate is security`s annual coupon rate.
4. Pr: Pr is security`s price per $100 Iace value.
5. Redemption: Redemption is security`s redemption value per $100 Iace value.
6. Frequency: Fre6uency is the number oI coupon payments per year.


3) hat is zero coupon/ Deep Discount Bond?
hat are zero coupon bonds
ho re6uires them
ho issue them
Prices as compared to other bonds
Maturity
Tax
@hls bond Lype ls lssued by many flnanclal enLlLles buL because lL ls so dlfferenL from
LradlLlonal bonds lL ls seL aparL Zero coupon bonds or zeros pay no regular lnLeresL

Zero coupon bonds have some unlque feaLures LhaL make Lhem effecLlve Lools for reachlng
cerLaln flnanclal goals however Lhey are noL Laxfrlendly so use cauLlon

Zero coupon bonds can be a good cholce for fundlng a fuLure flnanclal goal especlally lf you
don'L have a large sum Lo puL down now and can solve or llve wlLh Lhe Lax consequences

Investors buy zero coupon bonds at a deep discount from their face value, which
is the amount a bond will be worth when it "matures" or comes due.

The maturity dates on zero coupon bonds are usually long-term-many dont
mature for ten, fifteen, or more years. These long-term maturity dates allow an
investor to plan for a long-range goal, such as paying for a childs college
education. With the deep discount, an investor can put up a small amount of
money that can grow over many years.

%,

In addition, although no payments are made on zero coupon bonds until they
mature, investors may still have to pay federal, state, and local income tax on the
imputed or "phantom" interest that accrues each year.

Some investors avoid paying tax on the imputed interest by buying municipal
zero coupon bonds (if they live in the state where the bond was issued) or
purchasing the few corporate zero coupon bonds that have tax-exempt status.
4) hat does a inverted/Humped yield curve signiIy?
hat is a yield curve:
O @he yleld curve one of Lhe key sLaLlsLlcs LhaL economlsLs and lnvesLors use Lo Lry Lo
dlvlne Lhe fuLure course of Lhe economy ls slmply a measure of Lhe dlfference
beLween Lhe lnLeresL raLes on shorLLerm loans (or bonds) and Lhose on longLerm
loans (or bonds)
O RelaLlonshlp beLween Lhe lnLeresL raLe LhaL a bond pays and when LhaL bond maLures
,osL popular curves are Lhe ones used as benchmarks by lnsLlLuLlonal lnvesLors @reasurles
or AAA raLed munl bonds
n a sane and normal world Lhe llne on a yleld curve rlses as lL moves from lefL Lo rlghL
Lxample
InIlation and yield curve

JhaL ls lnverLed yleld curve? nvesLor senLlmenLs
An lnverLed yleld curve occurs when lnLeresL raLes are lower for longer maLurlLles Lhan for
shorLer ones Ls rare when Lhe curve on @reasurles lnverLs uolng so ls seen as a slgn of
recesslon

lor example lf a 30year bond pays 490 whlle a 10year bond pays 393 Lhe spread ls
093

llxedlncome lnvesLors use spreads as a slmple measuremenL by whlch Lo compare bonds
slmllar Lo Lhe way equlLy lnvesLors use prlce/earnlngs raLlos Lo compare shares of sLock


5) ModiIied Duration is a measure oI change in the value oI a security in response to a
change in interest rates.
Three Iactors aIIect the price oI a bond: Int rates, credit worthiness and
maturity. Interest rates most imp Iactor.





,odlfled uuraLlon esLabllshes a dlrecL maLhemaLlcal relaLlonshlp beLween bond
prlce and lnLeresL raLe changes L ls a dlrecL measure of Lhe lnLeresL raLe senslLlvlLy
of Lhe bond ,aLhemaLlcally percenLage change ln bond prlce ls Lhe producL of
,odlfled uuraLlon of Lhe bond and Lhe change ln lLs yleld
Dse @he concepL can be used effecLlvely Lo manage porLfollo volaLlllLy slnce Lhe
modlfled duraLlon of a bond and Lhe senslLlvlLy of lLs prlce Lo lnLeresL raLe
movemenLs are lnversely relaLed
,acaulay duraLlon ls a welghLed average of Lhe Llme perlods ln whlch cash flows
from a securlLy are recelved @he welghL aLLached Lo each perlod ls Lhe presenL value
of Lhe cash flow recelved ln LhaL perlod dlvlded by Lhe presenL value of Lhe securlLy
f Lhe securlLy pays a slngle cash flow aL maLurlLy Lhen Lhe duraLlon ls equal Lo Lhe
maLurlLy


6) How do Fund managers do ModiIied duration management (measure oI sensitivity oI
bond prices) and credit risk management?

7) II modiIied duration oI a portIolio is 10, is the Iund manager expecting interest rates
to go up or down?

8) hen interest rates are going up modiIied duration will be shoter & when interest
rates are coming down Iund managers will increase the modiIied duration.

Decrease in int rates will increase the price oI the bonds thereIore a high
modiIied duration will result in a higher increase in price which is Iavourable
Ior the portIolio manager.

9) hat is MIBOR and MIFOR
O MIBOR
@he lnLeresL raLe aL whlch banks can borrow funds ln markeLable slze from oLher
banks ln Lhe ndlan lnLerbank markeL @he ,umbal nLerbank Cffered 8aLe (,C8)
ls calculaLed everyday by Lhe naLlonal SLock Lxchange of ndla (nSL) as a welghLed
average of lendlng raLes of a group of banks on funds lenL Lo flrsLclass borrowers
@he ,C8 was launched on !une 13 1998 by Lhe CommlLLee for Lhe uevelopmenL
of Lhe uebL ,arkeL as an overnlghL raLe @he nSL launched Lhe 14day ,C8 on
november 10 1998 and Lhe one monLh and Lhree monLh ,C8s on uecember 1
1998 Slnce Lhe launch ,C8 raLes have been used as benchmark raLes for Lhe
ma[orlLy of money markeL deals made ln ndla
O ,lC8
A raLe LhaL ndlan banks and oLher derlvaLlve markeL parLlclpanLs used as a
benchmark for seLLlng prlces on forward raLe agreemenLs and lnLeresL raLe
derlvaLlves ,lC8 was a mlx of Lhe ondon nLerbank Cffer 8aLe (C8) and a
forward premlum derlved from ndlan forex markeLs

nlLlally Lhe lnLenLlon of ,lC8 was for hedglng purposes Powever many
corporaLe enLlLles used ,lC8 for currency speculaLlon

@he 8eserve ank of ndla (8) grew concerned over Lhe poLenLlal economlc
downslde rlsk by havlng an abundance of speculaLlve offbalancesheeL enLlLles
(such as currency swaps) @he 8 dld ban Lhe use of ,lC8 and oLher nonrupee
denomlnaLed benchmarks on ,ay 20 2003 ln hopes LhaL dolng so wlll lower Lhe
amounL of currency speculaLlon Powever Lhe 8 dld relax Lhe ban somewhaL on
Lhe followlng ,ay 30 and allowed ,lC8 Lo be only used ln lnLerbank relaLed
LransacLlons

10)hat are typical duration oI CPs?

An unsecured shorLLerm debL lnsLrumenL lssued by a corporaLlon Lyplcally
for Lhe flnanclng of accounLs recelvable lnvenLorles and meeLlng shorLLerm llablllLles
Commerclal paper ls noL usually backed by any form of collaLeral so only flrms wlLh
hlghquallLy debL raLlngs wlll easlly flnd buyers wlLhouL havlng Lo offer a subsLanLlal
dlscounL (hlgher cosL) for Lhe debL lssue
,aLurlLles on commerclal paper rarely range any longer Lhan 270 days @he
debL ls usually lssued aL a dlscounL reflecLlng prevalllng markeL lnLeresL raLes
ssued ln money markeL oughL ny lndlvlduals banks n8s ls
llnanclal ulslnLermedlaLlon Saves addlLlonal borrowlng cosL from banks
@he proceeds from Lhls Lype of flnanclng can only be used on currenL asseLs (lnvenLorles)
and are noL allowed Lo be used on flxed asseLs such as a new planL wlLhouL SLC
lnvolvemenL

11) hat are typical duration oI CDs?

A savlngs cerLlflcaLe enLlLllng Lhe bearer Lo recelve lnLeresL A Cu bears a maLurlLy
daLe a speclfled flxed lnLeresL raLe and can be lssued ln any denomlnaLlon Cus are
generally lssued by commerclal banks and are lnsured by Lhe luC @he Lerm of a
Cu generally ranges from one monLh Lo flve years
A cerLlflcaLe of deposlL ls a promlssory noLe lssued by a bank L ls a Llme deposlL
LhaL resLrlcLs holders from wlLhdrawlng funds on demand AlLhough lL ls sLlll
posslble Lo wlLhdraw Lhe money Lhls acLlon wlll ofLen lncur a penalLy




12) hat are rolling returns?
8olllng reLurns wlll deLermlne Lhe average annual reLurn for a cerLaln perlod Cnce LhaL
perlod comes Lo an end Lhe rolllng reLurn wlll cover a new perlod

13)P/, P/Bv PG RO

RO
@he reLurn on equlLy raLlo someLlmes called reLurn on neL worLh ls Lhe mosL
lmporLanL of all Lhe proflLablllLy raLlo Lo lnvesLors ln Lhe company L allows lnvesLors
Lo see how effecLlvely Lhe money Lhey lnvesLed ln Lhe flrm ls belng used L ls
essenLlally a measure of how lnvesLors have fared wlLh regard Lo Lhelr lnvesLmenL ln
Lhe flrm 8eLurn on equlLy ls usually seen as Lhe boLLom llne measure of flrm
performance

P/
f Lhere ls one number LhaL people look aL Lhan more any oLher lL ls Lhe rlce Lo
Larnlngs 8aLlo (/L) @he /L ls one of Lhose numbers LhaL lnvesLors Lhrow around
wlLh greaL auLhorlLy as lf lL Lold Lhe whole sLory Cf course lL doesn'L Lell Lhe whole
sLory Some lnvesLors read a hlgh /L as an overprlced sLock and LhaL may be Lhe
case however lL can also lndlcaLe Lhe markeL has hlgh hopes for Lhls sLock's fuLure
and has bld up Lhe prlce and vlce versa

/v
@hls measuremenL looks aL Lhe value Lhe markeL places on Lhe book value of Lhe
company ?ou calculaLe Lhe / by Laklng Lhe currenL prlce per share and dlvldlng by
Lhe book value per share ]8 Share r|ce ] 8ook Va|ue er Share lke Lhe /L
Lhe lower Lhe / Lhe beLLer Lhe value value lnvesLors would use a low / ls sLock
screens for lnsLance Lo ldenLlfy poLenLlal candldaLes

LC
@he markeL ls usually more concerned abouL Lhe fuLure Lhan Lhe presenL lL ls always
looklng for some way Lo flgure ouL whaL ls golng Lo happen ln Lhe companles fuLure

A raLlo LhaL wlll help you look aL fuLure earnlngs growLh ls called Lhe LC raLlo

?ou calculaLe Lhe LC by Laklng Lhe /L and dlvldlng lL by Lhe pro[ecLed growLh ln
earnlngs

LC (/L) / (pro[ecLed growLh ln earnlngs)

lor example a sLock wlLh a /L of 30 and pro[ecLed earnlng growLh nexL year of 13
would have a LC of 30 / 13 2

lf Lhe LC raLlo ls blg (or close Lo Lhe /L raLlo) you can undersLand LhaL Lhls ls
probably because Lhe pro[ecLed growLh earnlngs" are low @hls ls Lhe klnd of sLock
LhaL Lhe sLock markeL Lhlnks ls of noL much value

Cn Lhe oLher hand lf Lhe LC raLlo ls small (or very small as compared Lo Lhe /L
raLlo Lhen you know LhaL lL ls a valuable sLock) you know LhaL Lhe pro[ecLed
earnlngs musL be hlgh ?ou know LhaL Lhls ls Lhe klnd of fundamenLally sLrong sLock
LhaL Lhe markeL has overlooked for some reason

14)6 stages oI market cycle




15)From 2008 what did rbi & govt do ( monetary & Iiscal policy)

16)Trenar ratio, sharpe ratio, std deviation etc.
Treynor ratio
,easures reLurns earned ln excess of LhaL whlch could have been earned on a
rlskless lnvesLmenL per each unlL of markeL rlsk
@reynor raLlo also known as @reynor ndex and 8eward Lo volaLlllLy raLlo ls used Lo
measure Lhe reLurn for rlsk Laken @he raLlo was developed by !ack @reynor hence
Lhe name @reynor raLlo ls slmllar Lo Sharpe raLlo Lhe dlfference ls LhaL lL uses Lhe
beLa or Lhe volaLlllLy facLor Lo evaluaLe Lhe reLurns raLher Lhan Lhe sLandard
devlaLlon of porLfollo reLurns

8eward Lo volaLlllLy raLlo ls calculaLed by subLracLlng Lhe average rlsk free porLfollo
reLurn from Lhe average porLfollo reLurn and Lhen dlvldlng Lhe resulL by beLa value
of Lhe porLfollo

1reynor kat|o (kp kf) ] 8eta

Sharpe ratio
Sharpe ratio, also known as Sharp Index, Sharp ratio & Reward-to-Variability
ratio, is a popular indicator Ior measuring return-to-risk. This is a simple ratio
developed by 1990 conomics Nobel laureate illiam F Sharpe which
measures the risk adjusted return Irom a portIolio/asset using just three
components: portIolio return, risk-Iree return like 10-year US Treasury bond
return and the standard deviation oI portIolio returns.

@he Sharpe raLlo Lells us wheLher a porLfollos reLurns are due Lo smarL lnvesLmenL
declslons or a resulL of excess rlsk @hls measuremenL ls very useful
because alLhough one porLfollo or fund can reap hlgher reLurns Lhan lLs peers lL ls
only a good lnvesLmenL lf Lhose hlgher reLurns do noL come wlLh Loo much
addlLlonal rlsk

Sharpe ratio is calculated by subtracting the risk Iree return Irom the portIolio
return and then dividing the result by the standard deviation.

Sharpe Ratio (Rp - Rf) / StdDev

here Rp is the portIolio return, RI is the risk-Iree return and StdDev is the
standard deviation oI portIolio return.

Sharpe ratio is a very good indicator oI portIolio perIormance and is widely
utilized to compare portIolio perIormances. The values oI the ratio can be
positive or negative, where positive values indicate better perIormance
compared to risk-Iree investments and negative values indicate worse
perIormance than the same. In general, values above 1 are considered good
portIolio perIormance, 2 or above are very good and values above 3 are
excellent.

Std deviation
SLandard devlaLlon ls applled Lo Lhe annual raLe of reLurn of an lnvesLmenL Lo
measure Lhe lnvesLmenLs volaLlllLy SLandard devlaLlon ls also known as hlsLorlcal
volaLlllLy and ls used by lnvesLors as a gauge for Lhe amounL of expecLed volaLlllLy

17)NRGA 6
th
pay commission

18)Value research online mutual Iund rating model

hat is Value Research Fund Rating?
Value Research Fund Rating (Risk-adjusted Rating) is a convenient composite measure oI
both returns and risk. It is purely 6uantitative and there is no subjective component to the
Fund Rating. The assessment does not reIlect Value Research's opinion oI the Iuture potential
oI any Iund. It only gives a 6uick summary oI how a Iund has perIormed historically relative
to its peers.
How Funds are Rated?
For e6uity and hybrid Iunds, the Fund Ratings Ior the two time periods (3 and 5 years) are
combined to give a single assessment oI each Iund`s risk rating vis-a-vis other Iunds in each
Iund category. For debt Iunds, the Fund Ratings are based on 18-month weekly risk-adjusted
perIormance, relative to the other Iunds in category.

Value Research does not rate an e6uity or hybrid Iund with less than 3-year perIormance and
a debt Iund with less than 18-month perIormance track record. ach category must have a
minimum oI 10 Iunds Ior it to be rated. IIective, July 2008, we have put an additional
6ualiIying criteria, whereby a Iund with less than Rs 5 crore oI average AUM in the past six
months will not be eligible Ior rating.
Va|ue kesearch Iund k|sk Grade
value 8esearch lund 8lsk Crade capLures Lhe fund's rlsk of loss lund 8lsk Crade ls dlfferenL from
Lhe convenLlonal rlsk and volaLlllLy measures llke sLandard devlaLlon and beLa as lL lndlcaLes only
downslde volaLlllLy @he laLLer refers Lo absoluLe losses and even perlods when Lhe fund
underperforms a rlskfree guaranLeed lnvesLmenL @he raLlonale you can always geL a guaranLeed
reLurn by lnvesLlng ln a rlskfree guaranLeed lnvesLmenL llke a bank LermdeposlL @he rlsk of
lnvesLlng ln a muLual fund noL only lncludes Lhe posslblllLy of loslng money buL also Lhe chance of
earnlng less Lhan you would have on a guaranLeed lnvesLmenL

Crisil bond Iund index valuing illi6uid debt
Multi bagger techni6ue
ran[a||

CRISIL BOND FUND IND (VALUING ILLIQUID DBT)

--DURATION MGMT, CRDIT MANAGMNT

--How do Fund managers do ModiIied duration management (measure oI sensitivity oI bond
prices) and credit risk management?

--How do you Iind yield oI the illi6uid Iunds?

--II you buy a bond in Sec market, what does YTM mean ??

--hat are zero coupon bonds / Deep disc bond??

--hat is yield Iunction in excel do? hat inputs to be Ied in?

--hat does an inverted / humped yield curve signiIy?

--ModiIied Duration is a measure oI

--II MD oI a portIolio is 10, is the Iund manager expecting the interest rates to go up or down
??

--hat is MIBOR and MIFOR

--hat are typical duration oI Commercial Papers

--hat are typical duration oI CertiIicates oI Deposits

--RO, P/, PG, P/BV

--MULTI BAGGRS STOCKS6

--Model oI NAM (Six stages oI market cycle) psychological model and valuations oI each
COMP QUS

--From 2008 (lehman) till today what did RBI and Govt do ??
Ans
li6uidity, 6th pay commission, monetory policies, Iiscal on sectors, excise duties, interest rate
hikes, NRGA,

--Treynor Ratio, Sharpe Rtio, std deviation - TATA MF