Answer questions - volatility/risk adjusted measures of return

Hello everyone. This is the second week after level 1 exam, but for level 2 candidates, you might want to start thinking about level 2 exam strategy while enjoying this holiday season.

Investors seem to be in good mood this week. With oil price continue to hit the bottoms, energy stocks went down considerably for sometime now until this Monday. I’ve always said market timing is not for everyone, if you went in this week with certain names, you can possibly and easily profit 10 to 12%. If only we have a crystal ball.

Answer questions on inflation

Some of you have asked to explain inflation and interest rate. Since the question is very broad, I will try to explain it in high level. I believe once you understand the basic concept, you will be able to grasp the more difficult material due to inflation.

First of all, inflation is one of the important elements that macroeconomics focuses on (on top of unemployment, recessions, government spending & taxation, budget deficits, national debts…etc). I believe everyone has a rough idea of the meaning of inflation, but does everyone know what is a real inflation and what is not a real inflation?

Answer question on yield curve

There was a broad question on yield curve, I will try to explain at a high level. If you have any specific questions I am more than happy to take a look.

By definition, yield curve is the relationship between maturity and yield of bonds with equal quality but different maturities. In practice, money managers closely monitor yield curve changes in order to determine investment strategy. To analyse, a benchmark is normally used such as the U.S. Treasury bond yield.

Answer questions on bonds: Yield, Interest Rate, Coupon

I will try my best to answer the question someone had posted on the bond topic.  Since the question was very broad, I am not sure to which extent I should cover this subject. As a result, I will cover the basics with some intuitive explanation, as I believe people can remember better when they truly understand the basic concept. It is definitively a good question and it is very understandable that it may be a bit confusing.

The most important bond pricing relationship to understand is the inverse relationship between bond prices and interest rates (or bond yields) — as interest rates rise, bond prices fall and as interest rates fall, bond prices rise. So if the yield of the bond has fallen below the coupon rate, the price must have increased above par.

But before we go there, first let's look at the difference between the coupon rate and the Yield?

Coupon rate refers to the interest payments the bond issuer makes to the investor.