Lecture

Interest Rates: Term Structure and Valuing Bonds

Graph Chat

Chat with Graph Search

Ask any question about EPFL courses, lectures, exercises, research, news, etc. or try the example questions below.

DISCLAIMER: The Graph Chatbot is not programmed to provide explicit or categorical answers to your questions. Rather, it transforms your questions into API requests that are distributed across the various IT services officially administered by EPFL. Its purpose is solely to collect and recommend relevant references to content that you can explore to help you answer your questions.

In course

MGT-482: Principles of finance

The course provides a market-oriented framework for analyzing the major financial decisions made by firms. It provides an introduction to valuation techniques, investment decisions, asset valuation, financing decisions, and sustainable finance. ...

Description

This lecture covers the term structure of interest rates, focusing on the relationship between different term lengths and interest rates. It also delves into valuing bonds, including zero-coupon bonds and coupon bonds, and how to compute their present values. The presentation includes examples of bond pricing and yield to maturity calculations, as well as the impact of credit risk on bond prices. The discussion extends to credit ratings, investment grades, and the concept of green bonds as a sustainable investment option.

Instructor

Erwan Morellec

ERWAN MORELLEC is Swiss Finance Institute Professor and Professor of Finance at the Ecole Polytechnique Fédérale de Lausanne (EPFL), Switzerland. He is also the Head of the SFI Léman Centre, the Head of the SFI nation-wide PhD Program, and a CEPR Research Fellow. Formerly on the faculties of the Simon School of Business of the University of Rochester (USA) and HEC Lausanne (Switzerland), he holds a Ph.D. in Finance from HEC Paris. Professor Morellec is most active in the areas of corporate finance and banking and has taught several courses on these subjects to undergraduate, MBA, and doctoral students. His recent research examines the effects of prudential regulation on banks' insolvency risk or the effects of financial market imperfections on corporate investment, financing, and risk management decisions. His research has been presented at major academic conferences and seminar series around the world and is published in top rated academic journals such as the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, and the Journal of Economic Theory. He has received several research and teaching awards.

Official source

Ontological neighbourhood

Business

Finance: Financial risk management, Corporate finance

Related concepts (32)

Bond credit rating

In investment, the bond credit rating represents the credit worthiness of corporate or government bonds. It is not the same as an individual's credit score. The ratings are published by credit rating agencies and used by investment professionals to assess the likelihood the debt will be repaid. Credit rating is a highly concentrated industry with the "Big Three" credit rating agencies – Fitch Ratings, Moody's and Standard & Poor's (S&P) – controlling approximately 95% of the ratings business.

Government bond

A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date. For example, a bondholder invests

20,000, called face value or principal, into a 10-year government bond with a 10% annual coupon; the government would pay the bondholder 10% interest (

2000 in this case) each year and repay the $20,000 original face value at the date of maturity (i.

Credit derivative

In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the credit risk" or the risk of an event of default of a corporate or sovereign borrower, transferring it to an entity other than the lender or debtholder. An unfunded credit derivative is one where credit protection is bought and sold between bilateral counterparties without the protection seller having to put up money upfront or at any given time during the life of the deal unless an event of default occurs.

Bond market

The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on for public and private expenditures. The bond market has largely been dominated by the United States, which accounts for about 39% of the market.

Credit risk

Credit risk is the possibility of losing a lender holds due to a risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs.

Related lectures (64)

Principles of Finance: Interest Rates and Bond Valuation

Explores finance principles, interest rates, bond valuation, and sustainable investing.

Understanding Interest Rates: Term Structure and Yield Curve

Explores interest rates, term structure, and yield curve, illustrating their relation and impact on economic forecasts.

Investment Valuation: Present and Future Value Concepts

Explains present and future value concepts in investment valuation, emphasizing their calculation and significance in financial decision-making.

Understanding the Yield Curve

Explores the yield curve's significance in predicting economic trends and recessions based on the relationship between short- and long-term Treasury bond yields.

Peaks-Over-Threshold Model: Implications and Estimation

Explores the Peaks-Over-Threshold model assumptions, implications, and estimation methods, including fitting a GPD model to exceedances.