Par and Forward Rates
Par Rates A par rate is the yield-to-maturity that equates the present value of a bond’s cash flows to its par value (typically \(100\%\) of face value). Spot rates play a pivotal role in determining par rates. For a bond…
Spot Rates, Spot Curve, and Bond Pricing
Spot Rates Spot rates are the market discount rates for default-risk-free zero-coupon bonds. Unlike typical bonds that offer periodic interest payments, these bonds are sold at a discount and repaid at face value upon maturity. Sometimes referred to as “zero…
Identifying the Type of Market Structures
Monopoly markets and situations where companies hold significant pricing power can result in market inefficiencies, as the monopolies tend to constrain output in order to sell at higher prices. Due to this, many countries have a competition law that regulates…
Oligopoly Competition
Demand Analysis under Oligopoly Competition The demand curves in oligopoly markets are influenced by the level of pricing interdependence among firms. When collusion exists in a market, the aggregate market demand curve is divided among the individual producers. In the…
Monopolistic Competition
Demand Analysis under Monopolistic Competition In monopolistic competition, firms have a downward-sloping demand curve, meaning lower prices lead to more demand and vice versa. At some prices, demand is very responsive to changes (elastic), and at lower prices, demand is…
Characteristics of Market Structures
What Are Market Structures? Market structures describe the competitive environment in which firms operate. They determine how prices are set, how much competition exists and how easily new firms can enter or leave a market. In economics, market structures are…
Breakeven Analysis
What Is Breakeven Analysis? Breakeven analysis helps determine the level of output or sales at which a firm’s total revenue equals its total cost. At the breakeven point, economic profit is zero because the firm earns just enough revenue to…
Yield Spread Measures for Money Market Instruments
Money market instruments are short-term debt securities with original maturities of one year or less. They are a crucial part of the financial market and include a variety of instruments such as overnight sale and repurchase agreements (repos), bank certificates…
Yield Spread Measures for Floating-rate Instruments
Floating Rate Instruments Floating-rate instruments, such as floating-rate notes (FRNs) and most loans, differ from fixed-rate bonds in their periodic payment dynamics. Their interest payments fluctuate based on a reference interest rate, ensuring the borrower’s base rate remains aligned with…
Issuance and Trading of Government and Corporate Fixed-income Instruments
Sovereign vs. Corporate Debt Issuance Process There is a clear distinction between corporate and sovereign debt issuance processes. Corporate debt issuance tends to be opportunistic and is managed by investment bank underwriters on behalf of the issuers. On the other…
