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Why are interest rates and bonds inversely related?

When market interest rates rise, newly issued bonds pay higher coupons

This makes existing bonds less attractive —-and so investors will only buy them at a discount

The opposite applies —-and so interest rates and bond prices are inversely related

What are your thoughts on the market for the next 6 months

Well currently the market is going through relative uncertainty as it waits to see the effect of the Big Beautiful Bill alongside the tariff situation.

Within the next few months we should see continuation of elevated inflation as the tarrifs have not completely passed through to the consumer. And we should see slowed consumption but still be in a healthy state.

We’re going to still be at the late-cycle slow down in the economic cyle.

What determines a schools line of credit?

A school's line of credit is determined by the Property Tax Revenue of its District if not Tuition or a different collateral asset

What does the “tax-equivlaent yield” mean?

Tells you how much a taxable bond needs to yield before taxes, so that after taxes it has the same take-home return as a tax-free bond

How does fund accounting for non-profits differ from standard accrual accounting?

The main difference is that the goal is to make revenue match expenditures as closely as possible

How would an issuer decide on taxable vs tax-exempt issuance?

An issuer would decide on taxable versus tax-exempt issuance based on the nature of the project (like if its a public project), the associated tax implications, investor demand, and the overall financial strategy.

How do revenue bonds and general obligation bonds differ?

While General Obligation Bonds (GO) and Revenue bonds are both municipal bonds they differ signficantly in how their paid and security.

General Obligaiton bonds are backed by the full faith of municpality meaning the municipality pledges to use all its available resources to pay off the debt

While Revenue Bonds are only secured by revenue generated by a specific asset like a toll road.

what types of revenue bonds tend ot be riskier and less risky?

What to know about Stifel answer in the why

Stifel is the largest Underwriter of high schools and elementary schools in the US

- That’s even how I first got introduced to public finance, while I was in high school my school underwent a $140 Million renovation, and I wondered how this was possible coming from a Ugandan background, where the only good schools were private schools. (My mentor informed me it was public finance)

- When I finished middle school, my school had just started construction

Stifel also has been more very intentional about helping lawmakers public pension systems as financial illiteracy is something that effects many, Stifel has actively tried to make sure as people reach retirement their social security isn’t their sole source of income

Municipal bond

Are fixed income securities issued by states and local governments to finance public projects like schools, infrastructure, and hospitals

Walk me through a DCF

1. First you project out a company’s financials using assumptions for revenue growth, expenses and Working Capital

2. Then you get down to the unlevered FCF for each year

3. You finally discount the the FCF since Year 1 and the Terminal Value using the WACC to get the Enterprise Value

4. You sum it up and you have the EV

Walk me through how you get form Revenue to FCF in the projections?

1. You subtract COGS and Operating Expenses from Revenue to get EBIT

2. Afterward you multiply EBIT by (1-Tax Rate)

3. You then add back Depreciation and non charges charges

4. Finally you subtract Capex and the change in Working Capital

Why do you use 5-10 years for DCF projections?

Well its because that as far as you can reasonably project into the future. More than 10 years would be to difficult to predict due to the many changes that could happen in between.

What do you usually use for the discount rate?

Usually you use WACC

How do you calculate WACC?

Weighted average cost of capital is

Cost of Equity (% of Equity) + Cost of Debt (% of Debt) all times* (1-Tax Rate) + Cost of Preferred Stock * (% of preferred stock)

How do you get to Beta in the Cost of Equity calculation?

You look up the beta for each Comparable Company and take the median of the set

*NOTE DIVIDENDS are ALREADY FACTORED INTO BETA

How do you calculate the Terminal Value?

Using the Gordon Growth Method it would be:

Final Year Cash Flow * Growth Rate / (Discount Rate - Growth Rate)

Multiples method of deriving Terminal Value

You take the final projected year and multiply it by a Public Comparables Multiple for Valuation (like EV/EBITDA)

How do you select the appropriate exit multiple when calculating Terminal Value?

You would look at the Comparable Comapaneis and pick the median of the set or something within that range

What’s the relationship between debt and Cost of Equity?

More debt means a company is more risky and its Levered Beta would be higher,

so all else the same Higher Debt higher Cost of Equity

What type of sensitivity analyses would we look at in a DCF?

Things like Revenue Growth vs Terminal Multiple

How do you determine the discount rate on a bond?

You get the principal and coupon payments and run calculations that make the present value today equal to the market price

For a new issue of bonds you typically get a comparable risk free rate and add a credit spread

The bond’s disount rate is the investor’s requried return for each cash flow. So we can get it by adding a credit and liquidity premium to a comparable risk free rate by maturity

What is a Request for Proposal (RFP)?

A Request for Proposal is a formal document that a government issuer uses to invite firms to submit bids for services.

It outlines the projects objectives, required qualifications, and evaluation criteria. Its purpose to encourage competitive contractor bids.

Can you describe the economic cycle and explain where we are currently within it?

I would say America right now is in a late-cycle slow down bettween late expansion and early-contraction stage of the economic cycle

Real GDP growth was down first quarter (Q1), Q2 it rebounded, and though unemployment is currently low the Federal reserves decision to cut rates indicates a shift to risk management

What is the current yield of a 10-year treasury note?

4.01%

What is a bond?

A bond is a fixed income security representing an issuer’s debt to a lender

It can be issued by corporations and governments, and municipalties

A bond is a fixed income debt security issued by governments, municipalities, and corporations to investors

What is YTM in Bonds?

Yield to maturity is the overall return of the bond until it matures.

It could also be described as the bonds’s IRR

What is the 2 year-Treasury Yield?

3.46%

What is the 30-year Treasury Yield?

4.61%

What is the economic cycle?

There are 4 stages:

Expansion: Which is full of increasing economic activities like higher employment and spending

Peak: Which represents the highest point of economic growth before a slowdown begins

Contraction: Which is characterized by declining economic activity, declining GDP, and decreased consumer spending

Trough: This is the lowest point of contraction and characterized by low access to credit and unemployment

How do spot, forward and futures contracts differ?

Spot contracts are more current and they settle within 2 business days and involves immediate physical ownership transfer.

Forwards contracts are highly tailored contracts for future delivery of a commodity.

Meanwhile, futures contracts are standardized contracts with daily margin requirements to eliminate counter party risk.

SPOT Contracts are used to fulfill urgent physical needs.

Forwards contracts are used to secure and lock in margins with suppliers and customers.

Futures contract are a way of hedging risk

Real Rate

Real interest rate = Nominal rate - inflation rate (expected or actual)

Negative real rates mean that inflation is greater than the interest you earn.

Inflation rates that high are usually a result of central banks keep rates low.

TIPS Yields are a market quote for real rates directly

What are the key drivers of the price of a specific commodity such as oil or gold?

The key driver for the price of oil are supply and Demand.

With supply being influenced by the policies of OPEC as well as sanctions.

Demand is derived from transportation usage and the general energy demand from people using technology.

Often times price shocks are caused by geopoltical conflicts in which supply goes down.

***Gold has an inverse relationship with RIR

Describe the yield curve, its shapes and what they signify?

The Yield Curve is a plot of interest rates and maturities and it reflects interest rate expectations and liquidity and risk preferences.

Tell me some of the different bonds you know about and what about their price with respect to each other? (Plain vanilla/convertible/callable)

A plain vanilla bond is the most basic type of bond. It pays periodic and fixed coupons and repays the principal amount at a predetermined maturity date. There is no additional features.

A callable bond an issuer has the opportunity to redeem the bond early from the bondholder. If interest rates fall they’re likely to be called back.

A puttable bond an investor has the opportunity to redeem the bond early.

A convertible bond the investor has the opportunity to convert the bond into equity.

Yield Curve: its shapes and what they signify?

Normal sloping yield curve indicates expected economic growth and inflation (short term rates are lower than long term rates as should be)

Steep sloping yield curve means people expect strong growth and more inflation ahead (short term rates are significantly lower than longer term rates)

Flat sloping yield curve means economic growth is slowing and usually before a contraction(short term rates are about equal to long term rates)

Inverted Yield Curve (downward sloping) indicates economic slowdown and banks typically begin to cut rates in hopes of stimulating growth(short term rates are higher than longer term rates)

What is convexity?

Convexity measures the curvature of a bond’s price-yield relationship and tells you more precisely how sensitive bond is to changes in interest rates.