Chapter 6 - Chapter 6: 1. Valuation is the process that...

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Chapter 6: 1. Valuation is the process that links risk and return in order to determine the worth of an asset. 2. The value of an asset is the present value of all future cash flows it is expected to provide over a relevant time period. 3. Risk is generally incorporated into the discount rate in the present value model. 4. A bond will sell at a discount if the required return is greater than the coupon rate. 5. The present value of a bonds coupon payment and maturity value determines the value of the bond. 6. Bonds are long-term debt instruments used by business and government. 7. Interest rate risk and the time to maturity have a relationship that is best characterized as direct 8. What is the approximate yield to maturity for a $1,000 par value bond selling for $1,100 that matures in 5 years and pays a 10% coupon? 7.6% [YTM = 100 + (1,000- 1,100)/5 / (1,000+1,1100)/2 = 7.62 9. As market rate increases, the value of a bond will decrease , all other things equal. 10.
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This note was uploaded on 11/24/2010 for the course ACCOUNTING FINANCE taught by Professor Ozyge during the Spring '10 term at Rowan.

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