Fixed Income Analysis and Trading

This report covers fixed income analysis and trading, including the calculation of bond prices and an explanation of bond viability. It also explores social bonds as a source of funding for social projects and compares private placement and public offering methods. The report includes advantages and disadvantages of using social bonds and the benefits of private placement and public offering methods. Subject: Finance, Course Code: FIN101, College/University: Not mentioned.

FIXED INCOME ANALYSIS
AND TRADING

TABLE OF CONTENTS
Question 1........................................................................................................................................3
a. Calculation of current price of bond........................................................................................3
b. Explanation of bond's viability................................................................................................3
Question 2........................................................................................................................................5
a) Explaining the advantages and disadvantages of using social bond as a source of funding for
social projects as compared to other methods..............................................................................5
b)Explaining the private placement and the public offering methods along with advantages . .8
REFERENCES................................................................................................................................1

Question 1
a. Calculation of current price of bond
Bond price = C * {[1 – (1 + r)^ - n / r] + [F / (1 + r) ^ n]}
C = Coupon payment = £100 paid annually
r = Discount or Yield to maturity = 5% per year
n = number years to maturity of bond = 25 years
F = Future value or par value of the bond = £10000
Price of Government Bond = 100 * {[1 – (1 + 5%)^ - 25 / 5%] + [ 10000 / (1 + 5%) ^ 25]}
Bond price = 100 * {[1 – (1.05) ^ - 25 / 5%] + [ 10000 / (1.05) ^ 25]}
= 100 * {[1 – 0.2953 / 5%] + [ 10000 / 3.386]}
= 100 * {[0.7047 / 5%] + [ 10000 / 3.386]}
= 100 * 14.094 + 2953.34
= 1409.4 + 2953.34
Bond Price = £4362.74
b. Explanation of bond's viability
Viability of the bond can be described as an ability of bond to perform successfully in the
market when an investment is made within it. There are numerous factors associated with the
bond that affect its performance in the market such as bond's duration, default risk, comparable
investment returns and liquidity risk which would be discussed later in this report.
Bond's duration: It is a way through which the likelihood of changes that could take place
within the bond's price is being estimated with reference to the movements in interest rate. In
other words, it is the technique of measuring interest rate risks. The term duration has nothing do
with the time frame instead it is has everything to do with the rate of interest.
Macaulay's duration and modified duration for the current bond is 20 and 19 years
respectively which indicates the length of time the investor needs to hold the bond in an attempt
to recover the amount invested in the bond. This time period is quite higher which indicates
greater risk for an investor.
Default risk: It is the risk where the issuer of the bond is unable to pay the periodic and principal
payment accrued with respect to the amount borrowed through the bond (Chernov, Creal and
Hördahl, 2021). The issuer of the current bond is however being the government, which indicates

lower default risk as the investment made in government bond is low to zero as the latter rarely
makes default.
Comparable investment returns: This factor is helpful in comparing the current investment
avenue with related other investment opportunities having similar features. For this, the current
yield of the government bond will be calculated as follows:
Current yield = Annual coupon payment / Current market price * 100
Current yield = 100 / 4362.74 * 100 = 2.29%
By comparing the yield generated by other investment opportunities with the current
yield of the government bond, it has been identified that an investor must chose the proposed
government bond over other comparable investment returns because the yield generated by the
former is much higher than the latter. This indicates better viability of the given bond as an
investment avenue.
Liquidity risk: It is the risk that an investor would be able to sell the bond at a desired price
quickly in the market. The risk arise when there is a different in price bid by the buyers and the
price that the seller is asking for (Seltzer, Starks and Zhu, 2020). In case of government bond, the
liquidity risk is comparatively lower, as government securities and bonds are considered to be
less risky and constant return generators which makes them an attractive investment avenue.
Furthermore, the current yield of the given government bond is higher than that of other
comparable investment returns which additionally enhances their liquidity and accordingly, there
would be less liquidity risk inherent in this bond.

Question 2
a) Explaining the advantages and disadvantages of using social bond as a source of funding for
social projects as compared to other methods
source of funding for social projects
Social Bond (SB) is concerned with having the relevant ability to raise the fund with
ensuring the availability of positive outcomes (What is a Social Impact Bond? 2022). This type
of the fund tend to find the support financial issuers so that sustainable project with gaining
benefits in the social terms. There are different kinds of the objectives of the borrowers which
are required to be accomplished by having relevant method of financing. SB is one of the
significant method that can be used to obtain fund from range of cause to access to have proper
education along with affordable transportation, health care and food supply protection. This
allows to have g proper level of support for wider stakeholders through ensuring relevant
outcomes to customers & local communities from employees. There are different form of
benefits and drawbacks which can be obtained by companies as compared to the other methods
of financing in respect to the social projects.
Advantages
In order to conduct the social projects via having source of finance from the social bond can be
beneficial in different ways which are as follows:
Improves efficiency and effectiveness of social program
In order to accomplish the objective of conducting the social projects the specified
method can be highly useful as it enables to establish reliable metrics for improving
performance. It increases creativity & flexibility which optimizes the allocation of resources so
that proper financial outcome can be derived. This might not be possible via using the other
methods such as crowdfunding, equity, etc.
Strengthening relationship between n public and private sector
It helpful in gaining space between the public and private sector for responsible for
social investing (Berndt and Wirth, 2018). This method of financing in order to conduct the
social program allows getting ability to negotiate & establish an innovation model to alleviate
recidivism which might not be possible via using fund sourcing such as bank loan, debt, venture
funding, etc.
Enables to scale up

The particular method permits the companies to have ability to get large amount of
capital so that scaling up practice for expanding operation to enhance positive outcomes. There
other methods such as debt capital, equity financing, etc might not make possible in such feasible
manner.
Getting the project's success in higher effective manner
There are different kinds of the methods which are available for sourcing the finance
which might not enable to conduct the social program more effectively. Social impact fund is
one of the major technique that is highly suitable for accomplishing objective of executing social
projects.
Job creation & employment generation
This aids in obtaining the ability by the organization to offer employment opportunities
the people so that higher productivity to accomplish goal of conducting social programs can
become possible. As to the other methods such as term loan, venture funding, etc these
opportunity is not obtained by business.
Helps in coordinating with legal & political conditions by having proper performance
management
There are different kinds of the component that hamper the functioning of firm's ability
to cope up with prevailing environment (Carè, 2018). Social bond allows getting ability to
coordinate with both legal & political environment as there is no interference in such form of
conducting. This makes it feasible option as compared to the other methods such as other debt
financing, venture funding which possesses certain level distractions.
Ability to mitigate & transfer financial risk
Using social bond can be helpful in gaining the appropriate capacity to tackle the social
problems that might lead to result in financial losses. There are possibilities of having effective
outcome to avoid risk which hamper growth & development of business that is not received as
compared to other approaches.
Reduces the transaction cost
This type of bond allows the company to get the ability to attract investors & reduces the
transactions cost related with monitoring and evaluation. In the other methods such as equity,
debenture, etc there is involvement of such cost which makes the functioning expensive.
Trad ability

It tends to buy and hold investors which ensures the presence of clearing system& getting
credit rating that enable to support the prevailing cause. This method is helpful in achieving the
proper ability to get support which is not possible in other sourcing methods.
Principle protection
Social bonds as being fast emerging sector take up an increasing portion of fixed income
me insurance. In this only the portion of the principle at risk that aids the company to operate
with confidence and achieve objective of conducting social practices effectively. As compared to
implementation of other methods which does not allow meeting market expectations, enhancing
awareness of social issues, gaining ability to grow investor demand, etc.
Disadvantages
It does not get affected by variables
There are different kinds of the available in the market that has huge influence on the
processing of funds (Shrewsberry, 2021). Social bond is one of the significant method that does
not get affected by the prevailing interest rate, reinvestment, market, etc that has adverse impact
on the functioning. In comparison to the bank loan which is basically affected by the all
mentioned variable that is found be suitable for project.
Extensive administration cost
There is requirement to incur higher level of the cost for administration which inclines
its overall expenditure that affect efficiency of working. Other fund sourcing methods such as
bank loan, equity financing, etc. organization have idea about the related cost which is lower
than social bonds.
Requirement of intensive tracking
In this, there is number of requirement of this method such as having effective evaluation
of performance of participants that is time-consuming. This impact the strain on front line
relationship. In the other tools of sourcing finance there is not negative impact on relationship
with stakeholders.
Profit motive might comprise social impact
Social bonds is taken into the consideration by the organization for having ability to
conduct the practices in effective manner so that greater positive impact can be derived. On the
other side, the methods of sourcing finance such as bank loan, debenture, crowd funding, etc has
completely support to gain profitability which avoids the distractions as compared to social bond.

Requires up front research & development and contracting expertise
For successful conducting of the social bonds there is need of having expertise which
make it difficult procedure. Methods such as bank loan, equity financing, etc are simply to exert
as there is less involvement of social components.
Discouragement for tax paying
Too much of reliance on SIBs can discourage the use of sustained tax paying funding
method that has influence on the ability to attain economic development. The other methods
mentioned for raising funds promotes to pay tax that helping to avoid irrelevant legal
complications.
Need of strong commissioner relationship
For having the effective implementation of the social impact bond there is requirement of
having good level of relationship with commissioner which affects the success of processing
(Anderson and et.al., 2022). This can strain on the relationship which might influence
functioning that is not basically happened in other methods of financing.
Only recognize externally validated outcomes
There is lack of attention is provided on the other variable which aids in measuring
success. The other methods allow to get the proper evaluation of success of social project which
is not possible in SIBs.
Ineffective in bringing innovation
The objective of helping society does not become possible due to involvement of higher
level of complications as compared to other approaches.
Low return
It is interpreted that there is higher risk which tend to offer the lower return by
application of social bonds. This affect the processing of social projects in negative manner
whereas in the other approaches of sources of finance there are possibilities of inclining return
with high risk.
b)Explaining the private placement and the public offering methods along with advantages
Private placement refers the sale of bonds to pre selected investors for company seeking
raise for capital. This for SIBs can allow to receive the number of the advantages that includes
having relevant ability to maintain the confidentiality, accessing long term, fixed rate capital,
diversification of sourcing, and creating additional financing capacity. This tends to offer the

market stability and eliminating involvement of strict regulations. It can permit in successfully
operating so that greater amount of functioning with maintaining flexibility can become
possible. In addition to this, it can be identified that there is involvement of having significant
benchmark which can allow to get the quality performance. On the basis of this, it can be
articulated that there is higher effectiveness can be obtained by having private placement.
In the public offering there is involvement of the methods such as book building, open
offer and auctions. For the social impact bonds there is emphasis is provided on the initial public
and further offering that involves rule & regulations. Each method has distinct form of
advantages. There is basically a contract with the public sector or governing authority so that
relevant outcomes can be derived. This offers benefits like increased public image, having proper
accountability, sharing financial gain with corporate control, etc . That allows conducting
practice sin more effective pattern..

REFERENCES
Books and Journals
Anderson, J.A. and et.al., 2022. Distinct gene regulatory signatures of dominance rank and social
bond strength in wild baboons. Philosophical Transactions of the Royal Society B.
377(1845). p.20200441.
Berndt, C. and Wirth, M., 2018. Market, metrics, morals: The Social Impact Bond as an
emerging social policy instrument. Geoforum. 90. pp.27-35.
Carè, R., 2018. Social impact bond: Beyond financial innovation. In Sustainable Financial
Innovations (pp. 149-171). CRC Press.
Chernov, M., Creal, D. and Hördahl, P., 2021. rate risks: Evidence from Asia-Pacific local
currency bonds.'
Seltzer, L., Starks, L. T. and Zhu, Q., 2020. Climate regulatory risks and corporate
bonds. Nanyang Business School Research Paper, (20-05).
Shrewsberry, A.R., 2021. “Build a Bond With Us”: The Significance of Relationships and
Respect for Black Boys With Emotional and Behavioral Disabilities. California State
University, Long Beach.
Online
What is a Social Impact Bond? 2022. [Online]. Available
through:<https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/
social-impact-bond/>
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