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"Interest Rates and Bond Valuation"


Interest Rates and Bond Valuation

Interest Rates and Bond Valuation Bond Par value (face value) Coupon rate fixed rate floating rate zero coupon Coupon payment Maturity date Yield or Yield to maturity indenture call provision sinkin..
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Know the important bond features and bond types
.. to maturity is 8%. What is the price of this bond? B = 100[1 1/(1.08) 20 ] / .08 + 1000 / (1.08) B = 981.81 + 214.55 = 1196.36 N = 20; I/Y = 8; PMT = 100; FV = 1000 CPT PV = -1,196.36 If YTM = co..
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Which of the following statements concerning bonds is - ..
.. coupon rate current yield YTM. Current yield is the ratio of annual coupon divided by the current market price. When coupon rate is higher than the market rate, bond is at premium and when the ma..
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Interest Rates and Bond Valuation
.. bond price Why? Higher coupon rate causes value above par Price above par value, called a premium bond The Bond Pricing Equation This formalizes the calculations we have been doing. Example 7.1 F..
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Key Concepts and Skills
.. say that they would pay more for the new bond. Since it is priced to sell at $1,000, the 8% bond must sell for less than $1,000. The same logic works if the new bond has a yield and coupon less t..
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Bonds, Bond Valuation, and Interest Rates
.. 10-year, 9% annual coupon, $1,000 par value bond selling for $887 Find r If coupon rate r bond sells at a discount. If coupon rate = r bond sells at its par value. bond sells at a premium. If r r..
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Interest Rates and Bond Valuation
.. Varying degrees of default risk, rated similar to corporate debt Interest received is tax-exempt at the federal level What company are we looking at? What is the coupon rate? If the bond has a $1..
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Interest Rates Bond Valuation
.. Use One Bond YTM To Find Price Of Another Bond: Example 8 Bonds and Stocks Like stock, bonds bring capital (money) into the corporation so that it can invest in profitable projects Bondholders ar..
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Interest Rates Bond Valuation
.. - An obligor rated 'A' has STRONG capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than oblig..
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Learning Goals (cont'd)
.. True yield received if the bond is held to maturity Assumes all interest income is reinvested at rate equal to market rate at time of YTM calculation no reinvestment risk Calculates value based u..
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BA 580 Interest Rates
.. coupon payment of 5 % 100 = 5/(1+r) + 100/(1+r) = (105)/(1+r); r = 0.05 = 5% If P = 95, then r = 10.5% So does P falling cause r to rise or vise versa? Neither, BUT A COMMON MISCOMMUNICATION IN M..
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Bond valuation Zero coupon bond valuation and to interest ..
.. value today (V ) is the PV of all future forecasted dividends. The timeline and TVM valuation equation always resembles the following. Intrinsic values are usually privately obtained estimates of..
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Stock & Bond Valuation
.. Long yields > short yields Can be flat or even inverted during times of financial stress Stock Valuation: Preferred Stock PS D $2.30 = $20.90 / share p 0.11 Common Stock 1 + D (1+r) Basic formula..
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Discounted Cash Flow Valuation: The Inputs
.. equation. If you set the beta of debt be d instead of zero, you will get the second equation. The first equation assumes that debt carries no market risk and works reasonably well for investment ..
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Estimating Discount Rates
.. with debt betas increasing as the rating falls. Three measurement issues come up: How broadly or narrowly do we define comparable firms? We would argue for a broader rather than a narrow definiti..
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Understanding the Concept of Present Value $1.10
Understanding the Concept of Present Value $1.10 $1.21 $1.33 $1(1 + i) n i 2 3 FV/(1 + ) = PV An increase in the interest rate causes present value to fall. A decrease in the interest rate causes pr..
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Money & Banking Rate
Money & Banking Rate Maturity Mo/Yr Bid Asked Chg Yield 13 1/4 May 15 143:01 143:02 +14 3.22 Suppose I need a 4% rate of return. How much would I be willing to pay for $1 million of face value of th..
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BA 580-Interest Rates - Breaking Down Market Influences on ..
.. is closely intertwined with risk, it is a key reason that rates differ Time & Rate Differences R(short) = R(long) + cost differences What costs/risks differ or may differ depending on length of t..
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Money & Banking No statute defines - or ever has defined - ..
.. abrogated contracts in which payment was specified in gold. -- Michael Bordo in the Concise Encyclopedia of Economics Advantages Inflationary finance is impossible. Economic stability and less go..
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Bonds and Their Valuation
.. a bond sells at a premium, then (1) coupon rate r so (2) a call is more likely. So, expect to earn: YTC on premium bonds. YTM on par & discount bonds. Sinking Fund Provision to pay off a loan ove..
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Issues in Valuation DCF Method and Forecasting
.. price-sales multiple is available even for the most troubled firms. Unlike earnings and book value, which are heavily influenced by accounting decisions on depreciation, inventory and extraordina..
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