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Unformatted text preview: ........................ +(Payment + Face Value) / (1+r)^n PV(bond) = (PMT * PVAF) + ( Face Value * PV) Guess and check is the only way to solve it unless you have a financial calculator Rate of Return (total return) – earnings per period per dollar invested Earnings per period = total income Rate of return = total income / investment Total return = pmt + Change in bond price (% of capital appreciation/depreciation) Initial investment (P0) Change in Bond prices = P1 – P0 Or selling price – purchase price (initial investment) 5.5 Yield Curve People expect interest rates to change it directly effects the prices of the bond but the long term bond has more effect...
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- ........., bond increases Sell