Unit 4 (a)

INTEREST RATE

- Chapter 6 (p.195-p.215)
Market Interest Rate
• Interest rate is affected by economic conditions or situations.利率
受经济状况或情况影响
• It is mainly determined by the supply and demand of funds in
financial market.它主要由金融市场中资金的供求关系决定。
• Central banks also use it as a tool to suppress inflation in boom
economy or to stimulate economy in deflation period.中央银行还将
其用作在繁荣经济中抑制通货膨胀或在通货紧缩时期刺激经济的工
具。
• Interest rate changes trigger buy or sell decisions by individual
investors, businesses, and government units, and thus influence
investment performance.利率变化会触发个人投资者、企业和政府
单位的买入或卖出决策，从而影响投资业绩。
• Usually, nominal interest rate is quoted on a security in the
financial market. It represents the interest rate offered by the
security after considering all relevant risks.通常，名义利率是针对
金融市场中的证券报价的。 它代表证券在考虑所有相关风险后提供
的利率。
Nominal Interest Rate
• Factors that affect the interest rate :
• Real risk-free interest rate (rf)
• Inflation (h)
• Credit risk or Default违约risk
• Liquidity risk
• Covenant risk: provisions (e.g. taxability, convertibility,
or callability etc.) that impact a security holder
beneficially or adversely , or any restriction regarding
the use of funds raised by a particular security issuer契
约风险：对证券持有人有利或不利的条款（例如可征税性、可
兑换性或可赎回性等），或对特定证券发行人筹集的资金的使
用施加任何限制
• Time to maturity or maturity risk到期时间或到期风险
Real Risk-Free Rate
• The rate that a risk-free security would
pay if no inflation were expected over its
holding period.无风险证券在持有期内预计
没有通货膨胀的情况下将支付的利率。
• It measures only the society’s relative
time preference for consuming today
rather than tomorrow.它只衡量社会对今天
而不是明天消费的相对时间偏好。
• Concept of TVM. TVM的概念。
Inflation
• Percentage increase in the price of a standardized
basket of goods and services over a given period of
time.在给定时间段内，标准化一篮子商品和服务的价
格涨幅百分比。
• “Actual inflation rate” or “Expected inflation rate”. "实
际通货膨胀率"或"预期通货膨胀率"。
• Positive relationship between interest rate and
inflation rate.利率与通货膨胀率呈正相关。
• When inflation raises the general price level, investors who
buy financial assets must earn a higher interest rate to
compensate for continuing to hold the investment.当通货膨胀
提高一般价格水平时，购买金融资产的投资者必须获得更高的
利率，以补偿继续持有投资。
Inflation
• Annual inflation calculation using
Consumer Price Index (CPI) :使用居民
消费价格指数（CPI）计算年度通货膨
胀：
•

Inflation
Nominal Interest Rates vs. Inflation
名义利率与通货膨胀

.
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 Inflation and Interest Rate
通货膨胀和利率
In general :通常：
• Real Rate of Interest
= Change in purchasing power.购买力的变化
• Nominal Rate of Interest
= Quoted rate of interest报价利率
= Change in purchasing power and inflation
购买力和通货膨胀的变化
Fisher Equation费舍尔方程
• Theorizes that nominal risk-free rates must
compensate investors for :理论上，名义无风险利率
必须补偿投资者
• Inflation
• An additional premium above the expected rate of
inflation for forgoing present consumption.高于预
期通货膨胀率的额外溢价，以放弃目前的消费。
• i = Real Risk-Free Rate + Expected Inflation
In other textbooks, it may be written as :
• (1 + R) = (1 + r)(1 + h) => R = r + h + rh
• R = Nominal Rate; r = Real Rate; h = Expected
inflation rate.
• Or it may be approximated近似as : R = r + h
Credit Risk or Default Risk信用风险或违约风险
• The risk that issuer fails to pay the promised interest and
principal on a timely basis.发行人未能及时支付承诺的利息和
本金的风险。
• Investors demand higher interest rate with higher default
risk.投资者要求更高的利率和更高的违约风险。
• U.S. Treasury securities are generally considered to be free
of default risk. So they are generally considered as ‘risk-
free’ assets.美国国债通常被认为没有违约风险。 因此，它们
通常被认为是"无风险"资产。
• Investors must charge issuers other than the U.S.
Government a premium for any perceived probability of
default and the cost of potentially recovering the amount
loaned built into their regular interest premium.投资者必须向
美国政府以外的发行人收取任何感知违约概率的溢价，以及
可能收回其常规利息溢价中贷款金额的成本。
•
 Default Risk Premiums on Corporate Bonds

.
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Liquidity Risk
• A highly liquid asset can be sold at a predictable
price with low transaction costs on short notice.高
流动性资产可以在短时间内以可预测的价格出售，
交易成本低。
• The interest rate on a security reflects its relative
liquidity, with highly liquid assets carrying the
lowest interest rates (all other characteristics
remaining the same).证券的利率反映了其相对流
动性，高流动性资产具有最低的利率（所有其他特
征保持不变）。
• If the security is illiquid, investors add a liquidity
risk premium to the interest rate on the security.如
果证券流动性不足，投资者会在证券利率上增加流
动性风险溢价。
Special Provisions (or Covenants)特别规定（或契约）

• Examples : Taxability, Convertibility, and Callability.

示例：可征税性、可兑换性和可赎回性。
• Investors pay no federal taxes on interest payments
from municipal bonds so the holder may demand a
lower interest rate than a comparable taxable bond.
投资者无需为市政债券的利息支付缴纳联邦税，因
此持有人可以要求比可比应税债券更低的利率。
• A convertible bond offers the holder the opportunity
to exchange the bond for another type of the
issuer’s securities so that convertible bond buyers
require lower interest rates than a comparable non-
convertible bond holder would require.可转换债券
为持有人提供了将债券兑换成另一种发行人证券的
机会，因此可转换债券购买者需要的利率低于可比
的不可转换债券持有人所要求的利率。
Time/Term to Maturity or Maturity Risk到期时间/期
限或到期风险
• The length of time until the bond matures and the issuer repays the
principal.债券到期和发行人偿还本金的时间长度。
• Term structure of interest rate or so called yield curve compares the
interest rates (i.e. the market yields or the required return of investors)
on debt securities based on their time to maturity, assuming that all
other characteristics are equal.利率的期限结构或所谓的收益率曲线根
据债务证券的到期时间比较其利率（即市场收益率或投资者所需的回
报），假设所有其他特征都相同。

• The longer the time to maturity, the higher the required interest rate
buyers will demand ----- Maturity Premium (the difference between the
required return on long- versus short-term securities of the same
characteristics except maturity, and it can be positive, negative, or
zero).到期时间越长，买方对到期溢价（除到期日外具有相同特征的长
期证券与短期证券所需回报之间的差异）的要求-----利率就越高，可以
是正数、负数或零）。
•
Unit 4 (b)
VALUING BONDS

- Chapter 7
Bond Characteristics
• Debt Obligations of Issuer:发行人的债务：
• Repayment of “Principal”.偿还"本金"。
• Interest Payments (“Coupons”).利息支付（"息票"）。

• Known as “Fixed-Income Securities”

because the bondholders know how
much they will receive in interest
payments (coupons) and when their
principal will be repaid.被称为"固定收益证
券"，因为债券持有人知道他们将获得多少
利息支付（息票）以及何时偿还本金。
 Bond Characteristics
• Indenture Agreement契约协议

• a legal contract that outlines the precise terms between the bond issuer and
the bondholders.概述债券发行人与债券持有人之间确切条款的法律合同
• Maturity Date到期日

• Par Value (or Face Value) – the principal amount of debt borrowed to be
repaid, typically $1,000 in US.面值（或面值） – 借入的债务本金金额，通
常为1，000美元。
• Time to Maturity (e.g. 10 years, 30 years etc.)到期时间（例如10年、30年
等）
• Call / Convertible Feature (only some bonds have these features)认购/可
转换功能（只有部分债券具有这些功能）
• Coupon Rate (coupon interest is calculated based on par value and are
usually paid semi-annually).票面利率（票面利率根据面值计算，通常每半
年支付一次）。
Bond Markets
• Decentralized market, over-the-counter
trading through financial institutions分散市
场，通过金融机构进行场外交易
• Most trades occur between bond dealers
and large institutions大多数交易发生在债券
交易商和大型机构之间
• Bond prices have inverse relationship to
market interest rates债券价格与市场利率呈
反比关系
Reading Bond Quotes引用；引述；举例说明；开价；出价；报价
• Premium bond sells at market price higher than the
par value. It is quoted as over 100% of par value e.g.
101.15 (also means current market interest rate is
lower than the bond coupon rate)溢价债券以高于面值
的市场价格出售。 它的报价超过面值的100%，例如
101.15（也意味着当前市场利率低于债券票面利率）
• Discount bond sells at market price lower than the
par value. It is quoted as less than 100% of par
value e.g. 99.05 (also means current market interest
rate is higher than the bond coupon rate)贴现债券以
低于面值的市场价格出售。 它的报价低于面值的
100%，例如99.05（也意味着当前市场利率高于债券
票面利率）
Reading Bond Quotes
• Coupon rate set at time of bond issue:债
券发行时设定的票面利率：
• Factors that determine the coupon rate :
决定票面利率的因素：
• Uncertainty whether the issuer will be able to
make all the future payments.发行人是否能
够支付所有未来款项的不确定性
• Maturity of the bond.
• Current interest rate level in the economy.经
济中的当前利率水平。
• And many others…..
Bond Issuers债券发行人
• US Treasury (US Government bonds)
美国国债（美国政府债券）
• Other examples :
• Gilts : UK Government bonds金边债券：英
国政府债券
• Bunds : Germany Government bonds外滩 ：
德国 政府债券
• Corporations
• Municipalities (State or local
governments)自治市（州或地方政府）
 Amount of Capital Raised Yearly from Bonds Issued by Local and Federal Government
and Corporations每年从地方和联邦政府及公司发行的债券中筹集的资金金额

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Types of Bonds and Securities
• Treasury Inflation-Protected Securities (TIPS)国债通胀保值
证券
• Indexed to inflation; similar to i-Bonds in HK etc.与通货膨
胀挂钩;类似于香港的i-Bonds等。
• U.S. government agency securities美国政府机构证券
• Fannie Mae, Freddie Mac, HKMC etc.房利美、房地美、
HKMC等
• Mortgage-Backed Securities (MBS)抵押贷款支持证券
• Complicated financial products which are deemed to be
the cause of financial tsunami in 2008-09 e.g. mini-bond
of Lehman Brothers.被视为2008-09年度金融海啸原因的复
杂金融产品，例如雷曼兄弟的迷你债券。
• Zero Coupon Bond
Bond Valuation估價
• Uses Time Value of Money (TVM)
concepts
• Price/Value of Bond :
• Determined by the future cash flows from the
bond, which are known to the bondholders.
由债券持有人已知的债券未来现金流决定。
• Equal to the sum of the Present Values of all
future cash flows, discounted at prevailing
market interest rate.等于所有未来现金流的现
值之和，按现行市场利率贴现。
Present Value of Bond
• Present Value of Interest Payments +
Present Value of Par Value利息支付现
值 + 面值现值
•
Bond Valuation (Special Case)
• Special Case: Zero Coupon Bond特殊情况：零息债券
• No interest payments.无需支付利息。
• Only pays par value at maturity.仅在到期时支付面值。
• Sells at a substantial discount from the par value.以面值
的大幅折扣出售。
Computing Price of Zero Coupon Bond计算
零息债券价格
• Assumptions : 20-year zero coupon bond
• Compute the zero’s price by finding present value of the
$1,000 cash flow (par value) received in 20 years.通过查
找 20 年内收到的 1，000 美元现金流（面值）的现值来
计算零的价格
• 40 semi-annual periods at 3% interest. 40个半年期，利
率为3%。
• Use Present Value equation :使用现值公式
Example : Zero-Coupon Bond

INPUT 40 3 0 1,000
N I/YR PV PMT FV
OUTPUT 306.56

At what price could we purchase a bond with a

par value of $1,000, maturing in 20 years with a
6% annual rate of interest ?我们可以以什么价格
购买面值为1，000美元的债券，该债券在20年内
到期，年利率为6%？
Bond Yields
• Current Yield当前收益率
• Yield to Maturity到期收益率
• Yield to Call 赎回收益率
Bond Yields
• Current Yield
• The bond’s annual coupon interest/payment
divided by the bond’s current market price.债券的
年度息票利息/付款除以债券的当前市场价格。
• Measures the rate of return a bondholder would
earn annually from the coupon payments alone if
the bond was purchased at a stated price.衡量债
券持有人在以规定价格购买债券时每年仅从票息支
付中获得的回报率。
• Does not measure the total expected return since
it does not consider any capital gain or loss from
the bond.不衡量总预期回报，因为它不考虑债券
的任何资本收益或损失。
Bond Yields
• Yield to Maturity (YTM)
• Discount rate that equates the present value of all future
cash flows at current bond price.贴现率等于按当前债券价
格计算的所有未来现金流的现值。
• Normally, YTM equals to market interest rate.通常，YTM等
于市场利率。
• It tells bondholders the total rate of return that they might
expect if the bond was bought at a particular price and held
to maturity.它告诉债券持有人，如果债券以特定价格购买并
持有至到期，他们可能期望的总回报率。 YTM
Bond Value in Falling YTM
YTM

6% INPUT 40 3 32.50 1,000

Market N I/YR PV PMT FV
interest
rate OUTPUT 1057.79
(decrease)
(Increase)
5.5% INPUT 38 2.75 32.50 1,000
Market N I/YR PV PMT FV
interest
rate OUTPUT 1116.97
In a period of falling market interest rate (from 6% to 5.5%), what will be the
bond value for a 20-year, 6.5% coupon bond due to the interest-rate decline
after 1 year? Therefore, coupon interest = $1,000*6.5%/2 = $32.50
在市场利率下降（从6%降至5.5%）的时期，由于1年后利率下降，20年期6.5%
息票债券的债券价值是多少？因此，息票利息 = $1，000*6.5%/2 = $32.50
Bond Yields
• Yield to Call

• A particular bond may have a call provision such that

the issuer can buy back the bonds after from the
bondholders prior to the maturity date after large drops
in market interest rates at a pre-specified call price.特定
债券可能有看涨期权条款，使得发行人可以在到期日之
前从债券持有人那里回购债券，因为市场利率以预先指
定的看涨期权价格大幅下跌。
• Price of Callable Bond = Present Value of interest
payments to call date + Present Value of call price可赎
回债券价格 = 截至赎回日的利息现值 + 赎回价现值
Yield to Call
债券（在市场上支付5.75%的年利息）将以什么价格赎回五年，而不是以20
年的原始到期日，7%的票面利率，赎回价格1，070美元？
因此，息票利息=$1，000*7%/2=$35

INPUT 10 2.875 35 1,070

N I/YR PV PMT FV
OUTPUT 1106.38

At what price would a bond (paying 5.75%

annual interest in market) be called at five years,
rather than at the original maturity of 20 years,
7% coupon rate, call price $1,070 ?
Therefore, coupon interest=$1,000*7%/2=$35
 Bond Price vs Interest Rate Risk
• Interest Rate Risk :
• Bond price is very sensitiv敏感 to market interest rate.
• At time of purchase, the bond’s interest payments and par
value at maturity are fixed and known.在购买时，债券的利息
支付和到期面值是固定和已知的。
• Over time, when market interest rate changes but the bond’s
coupon rate remains fixed, bond price will change through
investors’ trading actions until the bond yield equals to the
market interest rate.随着时间的推移，当市场利率发生变化但
债券的票面利率保持不变时，债券价格将通过投资者的交易行
为而变化，直到债券收益率等于市场利率。
• So, bond price and market interest rate is inversely
related.因此，债券价格和市场利率是负相关的。
Bond Price vs Interest Rate Risk
• Example :
If market interest rate rises:如果市场利率上升：

• Newly-issued bonds have to offer higher interest

rates than the rates offered by existing bonds in
previous periods.新发行的债券必须提供比前期现有
债券提供的利率更高的利率。
• Existing bonds with lower coupon rate will drop in
price because investors will sell their bonds and buy
the newly-issued bonds with higher interest rates.现
有票面利率较低的债券价格将下跌，因为投资者将出
售其债券并购买利率较高的新发行的债券。
Bond Yield and Credit Risk/Default Risk
债券收益率和信用风险/违约风险
• Bond Ratings and Credit Risk
• Bond Yield vs Credit Risk
Bond Ratings
• Bond ratings indicate the chance the issuer will
not be able to repay interest and principal on a
timely basis i.e. the credit risk.债券评级表示发行人
无法及时偿还利息和本金的可能性，即信用风险。

• Credit rating agencies such as Moody’s, Standard

& Poor’s monitor corporations, government
agencies or municipal developments during the
bond’s lifetime and report their findings as a grade
or rating.穆迪（Moody's）、标准普尔（Standard
& Poor's）等信用评级机构在债券存续期内对公司、
政府机构或市政发展进行监控，并将其调查结果报
告为评级或评级。
Bond Ratings
• The ratings are based on detail analysis of issuers’
financial condition, general economic and credit
market conditions, and the economic value of any
underlying collateral.该评级乃根据对发行人的财务
状况、一般经济及信贷市场状况以及任何相关抵押
品的经济价值的详细分析而厘定。
• For example, based on Standard & Poor’s ratings :
例如，基于标准普尔的评级：
• Investment-grade bonds are rated AAA, AA, A or
BBB.
• Junk bonds (high-yield) are rated BB and below.
Bond Ratings
Bond Yield vs Credit Risk
• Bond yield is affected by credit risk
• Lower quality bonds (such as junk bonds) offer
higher yields.低质量债券（如垃圾债券）提供较
高的收益率。
• Higher quality bonds (such as Government
bonds) offer lower yields.较高质量的债券（如政
府债券）的收益率较低。
Bond Yield vs Credit Risk
• Investors only purchase higher risk bonds
when higher returns are offered.投资者只有
在提供更高回报时才会购买高风险债券。
• Junk bonds, because of their higher risk,
are high-yield bonds.垃圾债券由于其较高的
风险，是高收益债券。
• Yield spread between high- and low-quality
bonds varies over time.高质量和低质量债券
之间的收益率利差随时间而变化。
Summary of Bond Interest Rates
End of Unit 4