im-10-4e - CHAPTER TEN BOND PRICES AND YIELDS CHAPTER...

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CHAPTER TEN BOND PRICES AND YIELDS CHAPTER OVERVIEW This chapter presents a thorough discussion of the various types of bonds, bond characteristics, determinants of bond risk, bond ratings, and the pricing and yield calculations of various types of bonds. LEARNING OBJECTIVES After studying this chapter, the student should have a thorough understanding of the pricing, characteristics, and risk determinants of bonds. The student should be able to calculate yields and prices of various types of bonds and understand the relationship between the yield curve and bond prices. Presentation of Chapter Material 1. Terms and Bond Provisions The material on bonds begins with discussion of bond characteristics and provisions on bonds. Key characteristics of bonds are displayed in T 10-2. Prices that are quoted in the financial pages do not contain accrued interest. Most pricing examples that we use in finance also do not include discussion of accrued interest. Actual transaction prices will include any interest that has accrued since the last coupon payment. The text has an example on page 303. The key provisions for a bond are outlined in the indenture of the bond. T 10-2 Bond Characteristics A list of major bond provisions is contained in T 10-3. Secured bonds are backed by assets of the corporation which serve as collateral for the bond.
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