1.8 Week 4 Lect 1Student Bond Valuation pt one

1.8 Week 4 Lect 1Student Bond Valuation pt one -...

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    Bond Valuation – Part 1 Week 4 Lecture 1
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    Basic Valuation From the time value of money we realize that the  value of anything is based on the present value  of the cash flows the asset is expected to  produce in the future
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    The value of financial assets n n 2 2 1 1 r) (1 CF     ...     r) (1 CF     r) (1 CF     Value + + + + + + = 0 1 2 n r% CF 1 CF n CF 2 Value ... CF t  = the cash flow expected to be generated by  the asset in period t
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    r = the return investors consider appropriate  for holding such an asset - usually referred to  as the required return The return should reflect the  _______________________ Basic Valuation
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    Valuation of Financial Assets -  Bonds Bond is a long term debt instrument that  obligates the issuer to make specified payments  to the bondholder. Value is based on present value of:
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    Topics Covered Bond Characteristics reading the financial pages Interest Rates and Bond Prices Current Yield and Yield to Maturity Bond Rates and Returns
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    Key Features of a Bond Par value – face amount of the bond, which  is paid at maturity (assume $1,000). Coupon interest rate – stated interest rate (generally fixed)  paid by the issuer.  Coupon Payment (cpn) – dollar payment of interest.  (Coupon  interest rate times par value) Maturity date (t or n) - years until the bond must be repaid. Issue date – when the bond was issued.
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1.8 Week 4 Lect 1Student Bond Valuation pt one -...

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