Arak, Marcelle and Rosenstein, Stuart
CFA Digest Vol. 37, Issue 3, p. 77-78
The article compares the features of the Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds, two alternatives for investors hoping to avoid the negative effects of inflation on their portfolios without incurring credit risk, to determine the better after-tax alternative for the individual investor. Results reveal that TIPS enjoyed an 80 bps real return advantage over I Bonds.
Arak, Marcelle and Rosenstein, Stuart
Financial Services Review Vol. 15 Issue 4, p. 265-280
Both TIPS and Series I Bonds are adjusted for inflation, offering a real rate and an inflation adjustment. The inflation adjustment is the same on both securities, but the real portion of the interest rate on TIPS is generally much higher. Despite I Bonds’ less attractive real rate, they have several features that add to their value. They may be redeemed before maturity, at par value plus accrued interest, eliminating price risk. In addition, taxes may be deferred until redemption. We estimate the value of these two features, and find that they are substantial and could potentially offset the lower real rate of I Bonds.
Arak, Marcelle, and Martin, L. Ann
Financial Analysts Journal Vol. 61, Issue 2, p. 44-50
Financial analysts need accurate estimates of debt, equity, leverage, and EPS. The method proposed here, based on the probability of conversion, yields new estimates of the debt and equity in a convertible bond issue. When this method is used, the value of the equity component in a hypothetical issue is found to be substantial–larger than the value of the options and clearly larger than zero, which is assigned under current accounting rules. The estimate of the debt component is smaller than recorded under current accounting rules. Thus, the leverage of convertible bond issuers is substantially lower when this method is used.
Arak, Marcelle
Journal of Wealth Management Vol. 6 Issue 3, p. 19-25
Describes a procedure for combining options with outright stock holdings to get an accurate view of overall exposure to each company’s equity price. Examination of long call options in a portfolio of stocks and bonds; Measurement of an investor’s exposure to a stock; Procedures for calculating effective shares.