2. • The time value of money is the value of money
figuring in a given amount of interest earned
over a given amount of time
• Standard calculations based on the time value
of money are:-
1 :- Present value
2 :- Present value of an annuity
3 :- Present value of a perpetuity
4 :- Future value
5 :- Future value of an annuity
3. It is important for prospective bond buyers to
know how to determine the price of a bond
•Bonds can be priced at a premium, discount, or at par
.
•Formula for calculating a bond's price :-
C = coupon payment
n = number of payments
I = interest rate, or required yield
M = value at maturity, or par value
4. • Bond valuation Process
• Present value relationship
• Clean and dirty price
• Bond Pricing
5. • When a bond sells at a discount, YTM >
current yield > coupon yield.
• When a bond sells at a
premium, coupon yield > current yield
> YTM.
• When a bond sells at par, YTM =
7. • Yield and Bond Price
• Term Structure of Interest Rates
• Yield and price relationships
• Yield to Maturity
• Coupon yield
• Current yield
8. • As its name indicates, this is the yield curve shape
that forms during normal market conditions, wherein
investors generally believe that there will be no
significant changes in the economy, such as in
inflation rates, and that the economy will continue to
grow at a normal rate.
9. • These curves indicate that the market
environment is sending mixed signals
to investors, who are interpreting
interest rate movements in various
ways.
10. • These yield curves are rare, and they form during
extraordinary market conditions wherein the
expectations of investors are completely the inverse of
those demonstrated by the normal yield curve.
11. • Unfortunately, the basic yield curve does not account for
securities that have varying coupon rates.
12. • The credit spread, or quality spread, is the additional
yield an investor receives for acquiring a corporate bond
instead of a similar federal instrument.
