Case Problems In Managerial Finance Fixed Income 1

MODULE 3: FIXED INCOME 1. The Roots of the Bond Market Fixed Income Introduction Fixed Income is another word for the bond market, and while the bond market may appear arcane, it plays the crucial role of setting the price of borrowing and lending to governments, businesses, and consumers. The interplay between bond prices, bond yields, inflation, and creditworthiness are foundational to the setting of interest rates. In this module we will cover five topics: - How the bond market came into being, - Key factors that drive bond prices, - The role of central bankers in setting interest rates, - An overview of the yield curve, and - How and why the yield curve moves. In the process, you will: - Discover how the bond market became the biggest, most complex market in the world and how it serves a vital public service, - Describe how yields facilitate comparisons across the vast diversity of the bond market, - Explore how government bond yields are yardsticks by which all other investments are measured, - Examine how the bond market instills discipline in governments- Discover why, when, and how central banks make interest rate decisions, - Explore how bond valuation is