FI.Chapter5 - Grj:j li'oir,fillh Chapter 5 Chapter6...

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Grj:j*_ li ,'oir,fillh Bonds, Bond Valuation, and Interest Rates 156 Risk, Return, and the Capital Asset Pricing Model PortfoLio Theory and Other Asset Pricing Models Stocks, Stock Valuation, and Stock Market Equilibrium 280 Financial Options and Applications in Corporate Finance 313 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 200 241
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$)6 qfz ffi*. " {.f ' Jr* - al fficosds* ffioffie€ Vaieea€ioxe, lot of U.S. bonds have becn iss|ed, al intcrest payments. Of course, the doi{,n- and 1!c mean a LOTI According to sidc is ihat the company rvill hale to cotne ihe Federal l{eserve, ihcre are about up with tlre fLrll $1,000 pcr bond in 11i4.8 trillion of outstanding U.S. Treasury 10 years to pay off thc bondholdcrs, plus sccurities, more than $2.2 trillion of munic- thc bondholdcrs must report the imputcd ipaL securities, 53.0 trilLion of corporate intercst an.:t pay taxes on ii. \,.nJ,,.rnrl T,',, .h.r,,l.ol7 brl ior,,r /,,r Even ore irtercsting, Berkslire Hath cign bonds held in the Urjtod States. Not alray (chaircd by Warren Buftc'tt) issucd onlv is thc dollar anouni mhd bogglinS, so bonds r\ ith a negative interesi r:tc in 2002. js the varicty. Bonds come h nrany shipes Technicall, Bcrkshire's bonds called fof a anct flavors, lvith a nlrmber of ne1^, varielies 3,1 interest payment, but thcy nlso had an iniroduced cach vear For instance, hlo of attached !\ arrant that allows an investor to thc most interesiing botlds lLon't pal, .nv purchase shares of Berkshirc Haiharvay interest, and one actually his a netaLilc sk)ck at a fixcd price h the futurc. If the Ho$- can a bond noi pay interesi? An then investors can profit by cxcrcising thc invcstor night buy slrch a bonct today for wnrrants. flowever, lJerkshiro Hatha 'ilr $558 in exchange for the promise of tjl,{)(Xl dicln'i just Bive away the !varrants it in l0 years. The invcstor woulcl not reccivc icquired irvcstors io make annual instnll- any cash irlierest paymcnts, bui the 10 ycar nrcllt payrrcnts equal to 3.75% of the boncl's increase from theoriginal purchase prict to face 1,alue. Thus, investoE rcceive a 31" the $1,000 repay ent s,ouL.l provide a 6% interest payment, blrt they mrist then pal a ilnnual reiurn on thc inveshncnt. Although 3.75'l 'arrnnt fee, lor n net intcrcst rate of thclc are no annual cash
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This note was uploaded on 06/08/2009 for the course FI 601-602 FI601-602 taught by Professor Prof.geary during the Spring '09 term at New Haven.

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FI.Chapter5 - Grj:j li'oir,fillh Chapter 5 Chapter6...

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