4-3a.- Bond Valuation - Bond Valuation Ramesh Rao 1 Chapter...

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Ramesh Rao 1 Bond Valuation
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Ramesh Rao 2 Chapter Organization A. Introduction to Bonds B. Valuation: Level-Coupon Bonds C. Valuation with Semiannual Coupons D. Interest Rates and Bond Prices E. Yield to Maturity F. Other Related Issues F1. Bond Values Over Time F2. Maturity and Bond Price Volatility F3. Coupon Rate and Bond Price Volatility
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Ramesh Rao 3 A. Introduction to Bonds What is a Bond? Long-term debt of a firm. It is usually a certificate indicating that the borrower owes a specified sum to the lender Features of Bonds? Standard: Other: Types of Bonds?
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Ramesh Rao 4 Types of Bonds Zero Coupon Bonds A bond that does not make any periodic coupon payments Level Coupon Bonds A bond that makes regular, fixed coupon payments periodically Consols A bond that makes regular, fixed coupon payments forever
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Ramesh Rao 5 B. Valuation: Level- Coupon Bonds Information needed to value level-coupon bonds: Coupon payment dates and time to maturity (T) Coupon payment (C) per period and Face value (F) Discount rate Value = PV of coupon payment annuity + PV of face value ( 29 ( 29 T r F T r r C PV + + + - = 1 1 1 1   0 C $ 1 C $ 2 C $ 1 - T F C $ $ + T
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4-3a.- Bond Valuation - Bond Valuation Ramesh Rao 1 Chapter...

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