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Bond Valuation and Yields(1).pdf

Bond Valuation and Yields(1).pdf - Bond Valuation and...

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Page 1 of 2 Fadel N. Lawandy Bond Valuation and Yields 1. Bond Valuation: The value of a bond at any given time is the sum of all its future cash flows (Coupon Payment, and Face Value) discounted at the prevailing yield for similar Bonds. When Bond prices are quoted, they are quoted as Dirty price or Clean/Pure price. a. Dirty price: is the price of the bond including accrued interest. The Dirty Price occurs between coupon payments. b. Clean/Pure Price: is the pure price of the bond not accounting for any accrued interest between coupon payments. How to calculate the price of a bond using time value of money calculator function: S/A coupon paying bond Annual coupon paying bond FV = Face Value FV = Face Value PMT = Face value x coupon rate/2 PMT = Face value x coupon rate N = number of coupon payments remaining N = # of coupon payments remaining I = (Prevailing interest rate or yield)/2 I = Prevailing interest rate or yield PV = Price (compute) PV = Price (compute) 2. Yields a. Yield to Maturity (YTM):
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