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Akiyoshi Saito

Akiyoshi Saito

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Akiyoshi Saito

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  1. AkiyoshiSaito

  2. Hypothetical Situations • You worked for a company called Akiyoshi • President, Akiyoshi, did not pay you well • 55 Years • Own $300,000 by cash • Have a bad heart condition by working with Aki for a long time • No tolerance to Stress

  3. Appropriate Place to Put Money? • SavingsAccount • Professer Brooks portfolio • My Pocket • Stock Market • Treasury Bill • Municipal Bond

  4. Typical Return of Investment

  5. Inflation and Rate of Return(ROR) • What is the real ROR with Inflation??

  6. Inflation and Real ROR

  7. Go Back to Savings Account Is savings accounts really appropriate for your investment?

  8. ROR of Investment

  9. Risk of Investment • Variance of Market Price • Stock Price • Bond Price • Inflation Rate • Typically positive every year

  10. No Risk Investment? • TIPS Treasury Inflation-Protected Securities • STRIPS • Separate Trading of Registered Interest and Principal of Securities

  11. TIPS: How does this work? • Consumer Price Index(CPI) • Face Value • Coupon Rate

  12. TIPS

  13. TIPS : Example • Excel Sheet

  14. STRIPS • STRIPS are effectively zero coupon bonds • Separated in Coupon Strips and Principle Strips • Effectively zero coupon bonds? • Year to Maturity of STRIPS will be used to discount future cash flow

  15. STRIPS • Can be purchased from Bank • Bank will use spot rate to price each of Zero coupon bounds, whose rate can be calculated by observed yields of Treasury bills and treasury Coupon securities

  16. SPOT Rate Example • Purchased 1.5 years, semiannual coupon of 8.5% and $100 par bound • Observed YTM of .5 and I year are 8% and 8.3% respectively without no coupon. • Price of 1.5 Maturity bill is $99.45

  17. STRIPS http://www.google.com/search?q=treasury+strips&oe=utf-8&rls=org

  18. Example • Excel

  19. STRIPS : History • Originally started by • Merrill Lynch and Salomon Bros in 1982 • less liquid bounds and indirect obligation of US movement bounds • In 1985, US government announced STPRIPS program • All of 10 years and longer treasuries are qualified Caused To address those Problems

  20. STRIPS : Quiz • Face $100,000 • Coupon rate 3% • YTM 4% • Annual Interstate Payment • Year to Maturity 10 • How many Zero Coupon bonds can be created ? • What would be the rough projected price of Zero Coupon bounds for year 2 interest rate Payment?

  21. Questions ?? • Thank you for listening

  22. Source • http://www.money-rates.com/savings.htm • Foundation of Finance Market and Institutions • http://www.youtube.com/watch?v=pvTCTl86rrg • http://www.investopedia.com/terms/t/treasurystrips.asp • http://www.newyorkfed.org/aboutthefed/fedpoint/fed42.html • http://www.wikinvest.com/wiki/Treasury_STRIPS