Debt valuation and interest rates bonds

Chapter 9 – Debt V aluation and Interest Rates - Bonds  2005, Pearson Prentice Hall .

Characteristics of Bonds ,[object Object]

Characteristics of Bonds ,[object Object],0 1 2 . . . n $I $I $I $I $I $I+$M

[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],0 1 2 … 28 $32.50 $32.50 $32.50 $32.50 $32.50 $32.50+$1000

[object Object],[object Object]

[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],V = t = 1 n  $C t (1 + k) t

V b = $I t (PVIFA k b , n ) + $M (PVIF k b , n ) $I t $M (1 + k b ) t (1 + k b ) n V b = + n t = 1 

[object Object],P/YR = 1 N = 20 I%YR = 12 FV = 1,000 PMT = 120 Solve PV = - $1,000 0 1 2 3 . . . 20 1000 120 120 120 . . . 120

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Note : If the coupon rate > discount rate , the bond will sell for a premium .

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Note : If the coupon rate < discount rate , the bond will sell for a discount .

[object Object],[object Object],$I t $M (1 + k b ) t (1 + k b ) n P 0 = + n t = 1 

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],YTM Example

[object Object],[object Object],0 10 -$508 $1000

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],0 10 PV = -508 FV = 1000

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Debt valuation and interest rates bonds

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