Lecture 5- Bonds - Bonds Financial contracts that promise...

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Bonds Financial contracts that promise specified cash flows in the future. Issuing institution has an obligation to pay promised cash flows Examples Treasury Bills Commercial Paper Canada Savings Bonds Government of Canada Bonds Corporate Bonds
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Bond Valuation Consider a 10 year, 12% annual coupon bond with a face (or par) value of $1,000. The yield to maturity is 10%. What is the value of the bond?
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Bond Valuation What if the YTM = 12%?
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Bond Valuation What if the YTM is 14%?
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Inverse Relationship between bond prices and YTM
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Finding YTM Consider the same bond, but one year has past and the market price of the bond is now $1,249.876. What is the YTM?
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Bond Valuation: Another Complication North American bonds almost always pay coupons semi- annually. Consider a 10yr 12% semi-annual coupon bond with a face value of $1,000 and a YTM of 10% per year (compounded semi-annually). What is its value?
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Finding YTM If the same bond was trading at $894.06 what is its YTM?
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Lecture 5- Bonds - Bonds Financial contracts that promise...

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