Notes 3-3-08 (ch5)

Notes 3-3-08 (ch5) - Asked price – Buy the bond at this...

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Bus 170 Note Ch5 Bonds Bond – Security that obligates the issuer to make specific payment to the bond holder Coupon – Interest payments made to the bond holder Usually Semi Annually Face Value – (Principle value or the par value) Payment at the maturity of bond ($1000) Coupon Rate – Annual interest payment as a % of face value - Coupon rate * Face value = Annual payment (coupon) - If the interest Rates increase the price of the bond decrease - If the interest Rates decrease the price of the bond increases - Not same as discount rate
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Unformatted text preview: Asked price – Buy the bond at this price Bid price – sell the bond at this price Difference in $ Bid / Ask = Spread Bonds quoted in 32nds Price of a Bond – PV (Present Value) of all the future cash flows discounted at the appropriate r (Requited rate at return) PV(Bond) = Payment / (1+r)^1 + Payment / (1+r)^2 . ........................ +(Payment + Face Value) / (1+r)^n PV(bond) = PV of coupons + OV of Face Value PV(bond) = (PMT * PVAF) + ( Face Value * Discount Factor)...
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