13 - European bonds have an interest payment once a year...

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12:14 EAR = ( 1 + APR/m)^m – 1  EAR = ( 1 + periodic rate)^m – 1 APR ignores interest on interest EAR = ( 1 + APR/m)^m – 1 1 + 4.6929/26.071428)^26.071428 – 1 = $7383.11453 < will earn that much for  every dollar with a 469% bank of America problem FV = PV (1+r)^t FV = PV (1 + EAR)^t FV = PV (1 + e^rt – 1)^t FV = PVe^rt       < 4 variables and 1 constant Other ways for solving: PV = FVe^-r*t T = ln(FV/PV) / r R = ln(FV/PV) / t CHAPTER 7  Bond Par Value (face value) – corp are around 1K, Govt are around 10K
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Coupon rate – the fixed fraction of the face value paid out annually as interest  only. Coupon payment = coupon rate * face value
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Unformatted text preview: European bonds have an interest payment once a year American bonds have an interest payment twice a year Maturity Date Yield or Yield to maturity (YTM) the apr that sets the present value of bonds cash flows equal to current market price Present Value of Cash Flows as Rates Change Bond Value = PV of coupons + PV of par Bond = PV annuity + PV of lump sum As interest rates increase the PVs decrease As interest rates increase, bond prices decrease and vice versa The Bond-Pricing Equation Bond Value = C ( 1 1/(1+r 12:14 12:14...
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13 - European bonds have an interest payment once a year...

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