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

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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
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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)...
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