Topic03_valu_bond[1]

Topic03_valu_bond[1] - Thomas Moeller FINA 30153: Financial...

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Thomas Moeller FINA 30153: Financial Management 1 Topic 3 Bond valuation Objectives 1. Understand bond characteristics 2. Determine the value of a bond 3. Evaluate the effect of interest rate changes on bond prices
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Thomas Moeller FINA 30153: Financial Management 2 1. Bond Characteristics Definitions: - Bond: a contract between an issuer and a bondholder. The buyer of a newly issued bond lends money to the issuer who, in turn, agrees to pay interest on this loan and repay the principal at a stated maturity date. Issuer (Government entity or corporation) Bondholder
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Thomas Moeller FINA 30153: Financial Management 3 - Face value (Principal): amount to be repaid at maturity. Usually the face value is equal to $1,000. - Market value: price at which you could buy or sell a bond. - Coupon rate: stipulated interest rate to be paid on the face value of a bond. Coupon rate is NOT the discount rate used in PV calculations. - Coupon payment: periodic interest payment paid by the issuer to the bondholder. It is typically paid every six months. - Zero-coupon bond: bond which does not pay interests before maturity. - Yield-to-maturity: indicated compounded rate of return an investor will receive from a bond purchased at the current market price and held to maturity.
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Thomas Moeller FINA 30153: Financial Management 4
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This note was uploaded on 04/21/2008 for the course FINA 30153 taught by Professor Moeller during the Spring '08 term at TCU.

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Topic03_valu_bond[1] - Thomas Moeller FINA 30153: Financial...

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