Bond%20Valuation2010Winter

Bond%20Valuation2010Winter - Topics Covered Bond...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Bond Valuation Topics Covered c Bond Characteristics c reading the financial pages c Interest Rates and Bond Prices c Current Yield and Yield to Maturity c Bond Rates and Returns c The Yield Curve c Corporate Bonds and the Risk of Default Terminology c Bond - Security that obligates the issuer to make specified payments to the bondholder. c Face Value (Par Value) - Payment at the maturity of the bond. Terminology c Coupon - The interest payments made to the bondholder. c Coupon Rate - Annual interest payment, as a percentage of face value. c If a bond has five years to maturity, an $80 annual coupon, and a $1000 face value, its cash flows would look like this: Time 0 1 2 3 4 5 Coupons $80 $80 $80 $80 $80 Face Value $1000 Bond Features Sample Wall Street Journal Bond Quotation textbook Page 119
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 Reading the Wall Street Journal c 5 1 / 2 => 5.5% coupon rate c Jan 03 => Bond matures in Jan. 2003 c Letter “n” => Treasury note (< 10 years ) Reading the Wall Street Journal c Bid price => The price investors receive if they sell the bond to a bond dealer. c 103:15 => 103 and 15/32 Reading the Wall Street Journal c Asked price => The price investors pay to buy from a bond dealer. c 103:16 => 103 and 16/32 Reading the Wall Street Journal c CHG => The change in price since the previous day. c -4 => The price of the bond has decreased by 4/32. Reading the Wall Street Journal c Ask Yld => The return that investor will receive if they buy the bond at asked price and hold to maturity. c 2.05 => ask yield to maturity is 2.05%. Bonds The coupon rate IS NOT the discount rate used in the Present Value calculations.
Background image of page 2
3 Bond Pricing The price of a bond is the Present Value of all cash flows generated by the bond (i.e. coupons and face value) discounted at the required rate of return. Bond Pricing The price of a bond is the Present Value of all cash flows generated by the bond (i.e. coupons and face value) discounted at the required rate of return. PV
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/27/2010 for the course FIN 3300 taught by Professor Jerry during the Winter '10 term at CSU East Bay.

Page1 / 9

Bond%20Valuation2010Winter - Topics Covered Bond...

This preview shows document pages 1 - 4. Sign up to view the full document.

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