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| Author: | Smith, W.S. |
| Title: | Bond selection for managed portfolios |
| Journal: | Journal of Business Finance and Accounting
2005 : VOL. 32:1-2, p. 389-414 |
| Index terms: | Bonds |
| Freeterms: | Call risk Consol bond Indifference spread Price risk Promised yield |
| Language: | eng |
| Abstract: | The aim of this article is to describe an alternative heuristic approach produces a simple ordinal measure of reward, called the 'indifference spread,' that considers implicitly the potential sources of return to, as well as many of the risks associated with, investment in coupon bonds. For any coupon bond, the indifference spread method permits assessment of relative reward offered for the combined exposures to price and call risks, while also reasonably accommodating possible sale anytime prior to maturity. Once an investor identifies indifference spreads for all bonds under consideration as of any moment in time, he can then draw conclusions regarding their relative values at that time based, in large part, on these spreads. |
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