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Unformatted text preview: ( 1000 ) 1 ( 35 950 20 1 r r T t t + + + = ∑ = r = 3.8635% 10 yr Maturity Coupon Rate = 7% Price = $950 Solve for r = semiannual rate Yield to Maturity Example Bond Equivalent Yield 7.72% = 3.86% x 2 Effective Annual Yield (1.0386) 2 1 = 7.88% Current Yield Annual Interest / Market Price $70 / $950 = 7.37 % Yield Measures • Rating companies – Moody’s Investor Service – Standard & Poor’s – Fitch • Rating Categories – Investment grade – Speculative grade Default Risk and Ratings • Coverage ratios • Leverage ratios • Liquidity ratios • Profitability ratios • Cash flow to debt Factors Used by Rating Companies • Sinking funds • Subordination of future debt • Dividend restrictions • Collateral Protection Against Default...
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 Spring '09
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 Interest, bond equivalent yield

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