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Ch.6 FIN 351 - Quick Quiz How do you find the value of a...

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6-1 Quick Quiz How do you find the value of a bond and why do bond prices change? (Slide 6.8) What is a bond indenture and what are some of the important features? (Slide 6.30) How does inflation affect interest rates? ( Slide 6.48) What is the term structure of interest rates? (Slide 6.50) What factors determine the required return on bonds? (Slide 6.54 )
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6-2 The Bond-Pricing Equation t t YTM) (1 F YTM YTM) (1 1 1- C Value Bond + + + = PV(Annuity) PV(lump sum) C = Coupon payment; F = Face value Return to Quiz
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6-3 The Bond Indenture “Deed of Trust” Contract between issuing company and bondholders includes: Basic terms of the bonds Total amount of bonds issued Secured versus Unsecured Sinking fund provisions Call provisions Deferred call Call premium Details of protective covenants Return to Quiz
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6-4 The Fisher Effect The Fisher Effect defines the relationship between real rates, nominal rates and inflation (1 + R) = (1 + r)(1 + h) R = nominal rate
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