ISE2014_Class14

ISE2014_Class14 - Class 14 Bonds and Alternatives ISE 2014...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style Class 14 – Bonds and Alternatives ISE 2014 Fall 2010
Background image of page 1

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

View Full DocumentRight Arrow Icon
Your Methods PW Method FW Method AW Method IRR Method
Background image of page 2
Continuing with Bonds Today we’re going to finish up Chapter 5 with some more example bond problems Last class we learned how to solve for: VN (purchase price) C (sell price) i% (return rate) Today we’ll practice solving for the other
Background image of page 3

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

View Full DocumentRight Arrow Icon
Continuing with Bonds So what’s left so solve for? Z (face value or par value) r (bond rate) In the real world these are known values printed on the bond We can still solve for them as a missing piece of information
Background image of page 4
Bond Example 4 We purchase a 10-year bond for $500 The bond has a face value of $750 and we hold it until maturity We earned an overall return of 8% on our investment in the bond What was the bond rate?
Background image of page 5

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

View Full DocumentRight Arrow Icon
Bond Example 4 Let’s setup a cash flow diagram and identify our parameters: VN = $500 C = Z = $750 N = 10 years i% = 8%
Background image of page 6
Bond Example 4 Setup our equation and solve for r: VN = C(P/F,i%,N) + r(Z)(P/A,i%,N) 500 = 750(P/F,8%,10) + r(750)(P/A,8%,10) 500 = 750(.4632) + r(750)(6.7101) r = .030322 or about 3%
Background image of page 7

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

View Full DocumentRight Arrow Icon
Bond Example 5 We purchase a 30 year bond for $200 and keep the bond until maturity The bond rate is 6% We earned 10% return on our total investment What was the face value of the bond?
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 24

ISE2014_Class14 - Class 14 Bonds and Alternatives ISE 2014...

This preview shows document pages 1 - 9. Sign up to view the full document.

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