exam3notes - lower the coupon rate, the greater the...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Fin 367 - Most bond trading takes place on the OTC market - # bond issues > # stock - Treasury yield curve- a plot of treasury yields relative to maturity Shape reflection of term structure of interest rates Based on coupon yields - PE ratio Negatively related to the firm’s discount rate Discount rate is positively related to the stock’s risk PE negatively related to the stock’s risk - Principal repaid all at once pure discount and interst only - Bond values depend on interest rate Normally an interest only loan When interest rate rises, the bond’s value falls Discount bond when a bond sell for less than face value Premium bond when a bond sell for more than face value at a premium - All other things being equal, the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: lower the coupon rate, the greater the interest rate risk-All other things being equal, the longer the time to maturity, the greater the interest rate risk-The present value of the face amount will be much more volatile with a long-term bon-Call price is above the bond’s stated value -Bond ratings considered only with the possibility of default -Value of a floating rate bond depends on exactly how the coupon payment adjustmen are defined-Debt requires fixed payments of interest and principle over time(first claim in bankruptcy)-Equity only has a residual claim on firm assets and does not require any ongoing payments(behind debt-holders in bankruptcy)...
View Full Document

This note was uploaded on 09/10/2010 for the course FIN 367 taught by Professor Han during the Fall '08 term at University of Texas.

Page1 / 2

exam3notes - lower the coupon rate, the greater the...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online