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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 longterm 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.
 Spring '10
 OZYGE

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