by the finance major | Mar 17, 2023 | Education, Personal Finance
The bond market has been a topic of focus recently given the fallout of Silicon Valley Bank (SVB) and Signature Bank.
There’s an inverse relationship between bond prices and yields. This means that when bond prices go up, yields go down, and vice versa.
To understand this relationship, it’s helpful to know that a bond is essentially a loan that an investor makes to a company or government. When you buy a bond, you’re essentially lending money to the issuer in exchange for interest payments (known as the bond’s “yield”) and a promise to repay the loan (known as the bond’s “face value” or “par value”) at a later date.
Example
Let’s say that you buy a bond for $1,000 with a yield of 3%. This means that you will receive $30 in interest payments each year for the life of the bond (usually several years). However, let’s say that interest rates in the broader economy start to rise, and new bonds with similar risk profiles are now offering yields of 4%. This means that your 3% bond is now less attractive to potential buyers, since they can get a better return on their investment elsewhere.
As a result, the price of your bond may start to fall, since there are fewer buyers willing to pay $1,000 for a bond that is only offering a 3% yield. In order to make the bond more attractive to potential buyers, the yield on your bond may need to increase to match the yields being offered by new bonds. This means that the bond’s price will fall until its yield matches the market rate.
Conversely, if interest rates fall and new bonds with similar risk profiles are now offering yields of 2%, your 3% bond becomes more attractive to potential buyers. This means that the price of your bond may start to rise, since there are more buyers willing to pay $1,000 for a bond that is offering a higher yield than new bonds. In order to keep the bond’s yield in line with the market rate, the price of the bond will rise until its yield matches the market rate.
by the finance major | Feb 27, 2023 | Career, Education
Private equity is a type of investment where a group of investors pools their money together to buy a company that is not publicly traded (meaning you can’t buy its stock on a stock exchange).
The goal of the investors is to help the company grow and become more profitable so that they can sell it for more money than they paid for it. They usually do this by making changes to the company’s operations or management to improve its performance.
Private equity investors often buy companies that are struggling or in need of a change in direction. They may also invest in smaller companies that have the potential to grow quickly but need additional resources to do so.
Private equity can be extremely profitable, but risky because there is no guarantee that the company will become more profitable or that it will be easy to sell later on.
by the finance major | Feb 26, 2023 | Career, Education
A hedge fund is a type of investment fund that is run by professional money managers and caters to wealthy investors, institutions, and other sophisticated investors.
Hedge funds aim to generate higher returns than traditional investments, such as stocks and bonds, by using a variety of investment strategies. These strategies can include investing in a wide range of assets, such as stocks, bonds, commodities, currencies, and derivatives, and they can also involve short-selling or borrowing to amplify gains or mitigate losses.
Unlike mutual funds, hedge funds are typically not subject to the same regulations and restrictions. For example, they can invest in riskier assets, use more leverage, and charge higher fees.
Due to their complex strategies and higher risks, hedge funds are generally not suitable for the average investor. However, they can provide opportunities for wealthy investors to potentially earn higher returns, although with greater risk.
Check out some of the highest-paying areas of finance.
by the finance major | Feb 26, 2023 | Career, Education
The CPA (Certified Public Accountant) exam is a professional exam that someone takes to become a licensed public accountant. It’s an extremely challenging exam that tests a person’s knowledge in several areas related to accounting and finance.
The exam consists of four parts: (1) Auditing and Attestation, (2) Business Environment and Concepts, (3) Financial Accounting and (4) Reporting, and Regulation. Each part of the exam has multiple-choice questions as well as simulation questions that test a person’s ability to apply accounting and finance concepts to real-life situations.
To become a CPA, you need to meet certain educational requirements, such as completing a certain number of college credits in accounting and finance. After meeting these requirements, you can apply to take the exam. The exam is computer-based and can be taken at testing centers across the country.
Preparing for the CPA exam requires a ton of time and effort. It’s recommended that you study for several months before taking each part of the exam. There are many study materials available, such as textbooks, online courses, and practice exams. Many people choose to enroll in review courses that provide a structured approach to studying for the exam.
Passing the CPA exam can open up countless career opportunities in accounting, finance, and business in general.
by the finance major | Feb 26, 2023 | Career, Education
Imagine that a store has three parts: the front, the middle, and the back. The front is where customers come to buy things, the middle is where the store keeps its inventory, and the back is where the store manages its finances and paperwork.
In finance, we have something similar. The front office is like the store’s front, and it’s where the people who work with customers or clients are located. For example, investment bankers, traders, and financial advisors work in the front office. They’re the ones who help clients make financial decisions, buy and sell stocks and bonds, and manage portfolios.
The back office is like the store’s back. It’s where the people who manage the finances and paperwork of the company are located. For example, accountants, compliance officers, and operations specialists work in the back office. They’re the ones who make sure that everything is running smoothly, that transactions are processed correctly, and that the company is following all the rules and regulations.
Finally, we have the middle office, which is like the store’s middle. It’s where the people who support both the front and the back office work. For example, risk managers, data analysts, and IT professionals work in the middle office. They’re the ones who help the front office make informed decisions by providing data and analysis, and they help the back office by providing technical support and improving processes.
Click here for a detailed explanation of the Front Office.
