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Interest Rates &amp; Bond Valuation powerpoint

# Interest Rates &amp; Bond Valuation powerpoint -...

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Click to edit Master subtitle style  6/21/11 Interest Rate & Bond Valuation

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6/21/11 Bonds
6/21/11 Bond Vocabulary Coupon Stated interest payment made on a bond Face Value The principle amount of a bond that is repaid at the end of the  term. Also known as the par value for the bond. Coupon Rate The annual coupon divided by the face value of a bond Maturity Date on which the principle amount of a bond is paid

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6/21/11 Valuing a Bond We need to know… The number of periods until maturity The face value The coupon The market interest rate for bonds  Given the following information, can you calculate  the YTM? 10 years to maturity Annual coupon of \$80
6/21/11 Valuing a Bond We have an \$80 annuity lasting for 10 years PV Annuity = C*((1-(1/(1+r)t)/r) PV Annuity = 80 * ((1-(1/(1+.08)10)/.08 PV Annuity = 80* 6.710081 PV Annuity = \$536.81 We also have the principle payment at the end of year  10 PV = 1,000 / 1.0810 PV = \$463.19

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6/21/11 Valuing a Bond Let us say that a year has gone by and the market  rate has risen  to 10%.  Bond Information: (a) Face Value - \$1,000, (b)  Coupon - \$80, (c) Market Rate – 10%, and (d) Years  to Maturity – 9. Valuation We have an \$80 annuity lasting for 9 years PV Annuity = C*((1-(1/(1+r)t)/r) PV Annuity = 80 * ((1-(1/(1+.10)9)/.10 PV Annuity = 80* 5.759024
6/21/11 Bonds Our last bond was valued at \$884.82 Is this bond selling at a discount or premium to par?

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