Ch.11_Bonds_Inst

Ch.11_Bonds_Inst - CHAPTER 11 Bond Valuation 1 Learning...

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1 CHAPTER 11 Bond Valuation
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2 Learning Objectives Calculate the value of bonds
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3 General Valuation Model The financial value of any asset (investment) stems from the asset’s expected cash flows All assets valued in the same way: Estimate the expected cash flows Assess their riskiness Set the required rate of return (discount rate) Discount the cash flows and sum the present values
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4 Bond Definitions 1. Par value : Stated face value of the bond (generally the amount borrowed and repaid at maturity) 2. Coupon rate* : Stated interest rate on the bond. Multiply by par value to get dollar coupon payment. Usually fixed. * reflects market conditions at time bond was issued
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5 3. Maturity date : Date when the par value will be repaid to investors. Effective maturity declines each year after issue. 4. New versus seasoned bonds : When a bond is issued, its coupon rate reflects current conditions. When conditions change, bond values change.
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6 5. Debt service requirements : Total debt service payments, including interest expense and repayment of principal
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This note was uploaded on 02/24/2010 for the course HPM 340 taught by Professor Reiter during the Spring '10 term at UNC.

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Ch.11_Bonds_Inst - CHAPTER 11 Bond Valuation 1 Learning...

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