FIN301_Ch6

# FIN301_Ch6 - Chapter 6 Interest Rates and Bond Valuation...

This preview shows pages 1–8. Sign up to view the full content.

Chapter 6 Interest Rates and Bond Valuation

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 Chapter Outline Bonds and Bond Valuation Bond Classifications Bond Ratings Inflation and Interest Rates
3 Bond Definitions Bond Par value (face value) Coupon rate Coupon payment Maturity date Yield or Yield to maturity

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
4 PV of Cash Flows as Rates Change Bond Value = PV of coupons + PV of par t r) (1 F r t r) (1 1 - 1 C Value Bond + + + =
5 Valuing a Bond  1. Consider a bond with a coupon rate of 10% and coupons paid annually. The par value is \$1,000 and the bond has 5 years to maturity. The yield to maturity is 11%. What is the value of the bond? 2. Consider a bond with a coupon rate of 8% and coupons paid semi-annually. The par value is \$1,000 and the bond has 10 years to maturity. The yield to maturity is 10%. What is the value of the bond? 3. Suppose you are looking at a bond that has a 8% annual coupon and a face value of \$1,000. There are 20 years to maturity and the yield to maturity is 6%. What is the price of this bond? 4. Suppose you are looking at a bond that has a 8% annual coupon and a face value of \$1,000. Coupons are paid quarterly. There are 15 years to maturity and the yield to maturity is 6%. What is the price of this bond?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
6 Graphical Relationship Between Price and  YTM (10-year 8% Annual Coupon Bonds) 600 700 800 900 1000 1100 1200 1300 1400 1500 0% 2% 4% 6% 8% 10% 12% 14%
7 Bond Prices: Relationship  Between Coupon and Yield If YTM = coupon rate, then par value = bond price

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 05/06/2008 for the course FIN 301 taught by Professor Andelin,stevenle during the Spring '07 term at Penn State.

### Page1 / 23

FIN301_Ch6 - Chapter 6 Interest Rates and Bond Valuation...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online