This preview shows pages 1–8. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Chapter 7 Formulas: I. What Each Letter Means: V B = Coupon Price of Bond r d = Discount RateUsed to Calculate the PV of the Cash Flows (Bonds Price) N declines over time after the bond has been issued This amount must be paid at maturity When: V B = I N T = PV (Present Value) Annuity Factor and When + M = PV (Present Value) of a Lump Sum FixedRate Bond Sells at its Par Value [FixedRate Bond Sells = (equal to) Par Value] Also Occurs Whenever: The Going Rate of Interest is Equal to the Coupon Rate [Rate of Interest = (equal to) coupon rate] FixedRate Bond Sells Below its Par Value [FixedRate Bond Sells < (less than) Par Value] Also Occurs Whenever: The Going Rate of Interest is Above the Coupon Rate [Rate of Interest > (greater than) coupon rate] FixedRate Bond Sells Above its Par Value [FixedRate Bond Sells > (greater than) Par Value] Also Occurs Whenever : The Going Rate of Interest is Below the Coupon Rate [Rate of Interest < (less than) coupon rate] r d = market rate V B = price ; & The Market Interest Rate on the Bond N Used to Calculate the PV of the Cash Flows (Bonds Price) N declines over time after the bond has been issued This amount must be paid at maturity When: V B = I N T = PV (Present Value) Annuity Factor and When + M = PV (Present Value) of a Lump Sum FixedRate Bond Sells at its Par Value [FixedRate Bond Sells = (equal to) Par Value] Also Occurs Whenever: The Going Rate of Interest is Equal to the Coupon Rate [Rate of Interest = (equal to) coupon rate] FixedRate Bond Sells Below its Par Value [FixedRate Bond Sells < (less than) Par Value] Also Occurs Whenever: The Going Rate of Interest is Above the Coupon Rate [Rate of Interest > (greater than) coupon rate] FixedRate Bond Sells Above its Par Value [FixedRate Bond Sells > (greater than) Par Value] Also Occurs Whenever : The Going Rate of Interest is Below the Coupon Rate [Rate of Interest < (less than) coupon rate] r d = market rate V B = price = Time Until Maturity (on calculator); & The # of Years Before the Bond Matures; V B = I N T (in a problem) is a: PV (Present Value) Annuity Factor + M (in a problem) is a: Present Value of a Lump Sum I N T = Dollars of Interest Paid Each Year = Coupon Rate x Par Value; & Coupon Payment; & PMT (in calculator terminology) M = The Par (or Maturity) Value Used to Calculate the PV of the Cash Flows (Bonds Price) N declines over time after the bond has been issued This amount must be paid at maturity When: V B = I N T = PV (Present Value) Annuity Factor and When + M = PV (Present Value) of a Lump Sum FixedRate Bond Sells at its Par Value [FixedRate Bond Sells = (equal to) Par Value] Also Occurs Whenever: The Going Rate of Interest is Equal to the Coupon Rate [Rate of Interest = (equal to) coupon rate] FixedRate Bond Sells Below its Par Value [FixedRate Bond Sells < (less than) Par Value] Also Occurs Whenever: The Going Rate of Interest is Above the Coupon Rate [Rate of Interest > (greater than) coupon rate]...
View
Full
Document
 Spring '11
 lawrence

Click to edit the document details