Thesis (MBA)--Stellenbosch University, 1984. / The capital market is a field of very specialised financial
knowledge and expertise. The latter is concentrated in relatively
few people who manage vast portfolios of such assets.
I was introduced to the South African capital market early in 1983.
In an effort to comprehend the intricacies of my new surroundings I
started to look for something to read to answer the many questions I
had. Very little is written about the South African capital market,
even more so for readers who are not well acquainted with this
subject.
This technical report endeavours to fill such a need. It surveys
risk, risk management and strategy formulation pertaining to the
holding of a single or portfolio of bonds.
Chapter 1 is a general introduction. It surveys the growth of the
capital market, the reason for such growth and briefly points out
the parameters of thereof. It introduces the financial intermediaries
that are responsible for the matching of demand and supply and
briefly points out the difference between the money- an capital
markets.
Three important concepts, yield to maturity, a yield curve and the
price calculation of a bond is explained and three important general
shapes that the yield curve might adopt, is introduced.
Chapter 2 takes account of the risk that is presently associated
with the holding of a single or a portfolio of bonds. The effects
of inflation, changes in the level of applicable yield to maturities
and the reinvestment risk is explained and quantified given a
particular scenario of ex ante contingencies.
Less quantifiable elements of risk, namely, marketability, political
and default risk and the role of emotions and expectations, are
discussed and possible problems in this regard are pointed out.
Chapter 3 turns to a more theoretical discussion of risk. It looks
at the expected rate of return on a single or portfolio of bonds and
reviews the method of measuring expected risk in terms of a standard
deviation. Chapter 3 concludes by making the important remark that
risk is an esoteric concept which is based on an expected scenario
of contingencies of each investor. Central to the discussion is the
formation of a scenario pertaining to the relevant variables
concerning the bond investment market.
Chapters 4 and 5 are dedicated to two lesser known concepts,
duration and immunisation. Each bond has its own unique duration.
That is the time period during which a loss of capital value will be
exactly equal to the gain in interest earned on invested coupons
received in the case of an upwards move in the applicable yield to
maturity curve, and vice versa. Chapter 5 uses this feature to
immunise a bond portfolio against loss of return. This method,
however, needs considerable study before it can be used as a
portfolio management tool since it is based on parallel movements of
the yield to maturity curve.
Chapter 6 introduces a new· feature, namely options on bonds, of the
South African bond market. It defines options and explains the
strategic utilization thereof in both bear and bull markets.
Chapter 7 is a practical discussion of strategy formulation in the
bond market. It defines strategic decision making and describes the
investment process, and its dynamics in terms of strategy
formulation and execution. Active and passive portfolio management
and the main problem encountered in South Africa pertaining to
strategy execution are briefly discussed. Two different portfolio
tactics that are employed, namely, options and switching, to enhance portfolio performance (earnings) are introduced. The chapter makes
mention of the present state of the art of portfolio management and
concludes that portfolio managers must above all be people who can
cope with, and anticipate change.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/64786 |
| Date | 12 1900 |
| Creators | Snyman, Charles Napier |
| Contributors | Afleck-Graves, J., Stellenbosch University. Faculty of Economic & Management Sciences. Graduate School of Business. |
| Publisher | Stellenbosch : Stellenbosch University |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | English |
| Type | Thesis |
| Format | 149 leaves : ill. |
| Rights | Stellenbosch University |
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