Fixed securities and interest rate risk

Fixed income securities are those financial claims that promise to pay fixed cash amount over some limited time periods into the future.
Fixed securities some examples are
1)Bond
2)Self-amortizing loans
3)Corporate bond
4)Home mortgage
Interest rate risk-The interest rate risk focus on the most common fixed income securities Bond,bond pay cash based on contractual interest rate times the amount borrowed or principal the interest rate called coupan rate.

Bonds interest rate risk management- Bond interest rate risk based on economic elasticity concept familiar with the measurement of the price sensitivity of a given bond to change in yields.A bond price elasticity is demanded as a ratio of the percent change in price of the bond relative to a percent change in gross yields are the yield to maturity plus one.
Bond price elasticity with respect to gross yield is a widely used measure of interest rate risk of bond and some other fixed-income instrument like mortgage.
Bond price formula :- P0   =

t=1M  cF/(1+i)t+F/(1+i)M


where
P = price of bond
F= face value
M=periods in the future on the maturity date
i=discount rate

 

 

 

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