Magic Numbers for Bonds and Derivatives: How to Calculate the 25 Key Ratios for Investing Success

by Peter Temple (www.new-online-investor.co.uk)

• ISBN13: 9780470821398
• ISBN10: 0470821396
• Format: Hardcover
• Copyright: 2004-12-01
• Publisher: WILEY

Summary

The third book in the top-selling Magic Numbers series clarifies the key concepts and formulas of finance Magic Numbers for Bonds and Derivatives takes difficult financial concepts and breaks them down into easily understandable formulas that can be readily applied by finance professionals and individual investors. It examines key ratios and concepts for assessing bond investments from conventional to index-linked bonds, along with commonly used derivatives including futures, options, warrants, and convertibles. Ratios and concepts are described in detail, with guidelines on where to find the data needed to actually calculate them. The author includes explanations of compounding and discounting, internal rates of return, accrued interest, yield curves and spreads, duration, convexity, default rates, and more.

Author Biography

Peter Temple has spent 34 years working in or writing about investments and financial markets. After an 18-year career in fund management and stock-broking, he became a full-time writer in 1988.

He has written more than a dozen books about finance and investing, mainly aimed at private investors, including Magic Numbers: The 33 Key Ratios That Every Investors Should Know and Magic Numbers for Stock Investors. He has also written books about hedge funds, private equity, financial derivatives, economic statistics, and a guide to using the internet to gather investment information.

His articles appear widely in financial publications such as London's Financial Times and Investors' Chronicle.

He and his wife live and work in part of a converted 18th century water mill in the Lake District National Park in Northern England.

Table of Contents

Acknowledgments	vii
Introduction	ix
Part One: Bond ``Magic Numbers'' -- Basics	1	(58)
Compounding	7	(5)
Discounting	12	(6)
Accrued interest	18	(7)
Running yield	25	(6)
Redemption yield	31	(6)
Yield on a zero-coupon bond	37	(7)
Yield to worst	44	(6)
Redemption yield on an index-linked bond	50	(9)
Part Two: Bond ``Magic Numbers'' -- Analysis	59	(42)
Yield spreads	63	(5)
Yield curve	68	(7)
Duration	75	(6)
Macaulay duration	81	(6)
Basis-point value	87	(5)
Convexity and convexity adjustment	92	(9)
Part Three: Futures and Options ``Magic Numbers''	101	(58)
Volatility	105	(5)
Fair value of a future	110	(6)
Fair value of an option	116	(9)
Time value and intrinsic value of an option	125	(5)
Delta and gamma	130	(8)
Vega, rho and theta	138	(7)
Returns on covered call writing	145	(9)
The put-call ratio	154	(5)
Part Four: Convertibles and Warrants ``Magic Numbers''	159	(22)
Convertible bonds -- conversion premium and payback	163	(6)
Breakeven rate and capital fulcrum point	169	(6)
Covered warrant gearing	175	(6)
Appendix: Finding the information	181	(12)
Index	193