Class 5

Class 5 - o Zero coupon bond: No interest payments Simply...

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Ch. 9: Bonds Yield: o Interest rate at which you borrow Term structure of interest rates: o Rates differ based on length of maturity of bonds o Also varies w/ the state of the economy (see graph of “peak” and “trough”) o Short term rates: T-bill yields Bank rates Prime rates All typically move together Coupon bond: o Combination of annuity and zero coupon bond o Get semi-annual returns at regular intervals o Also get full principle amount at the end of the bond’s duration
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Unformatted text preview: o Zero coupon bond: No interest payments Simply get face value of principle payment at end of duration Yield to maturity of bond: o Simply the IRR of a bond o R at which NPV = 0 o Can then calculate quoted: R x (365/ # of days) o Effective annual rate of return: ((1 + r)^2 1) Coupon bond pricing: o PV of an annuity Coupon bond yield: o Set NPV = 0 or use Excel tool GoalSeek...
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Class 5 - o Zero coupon bond: No interest payments Simply...

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