Notes3 - InterestRatesandBondValuation FaceValueorParValue

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Interest Rates and Bond Valuation Face Value or Par Value -amount to be repaid at end of the loan Coupon -stated Interest Payment Made on Bond Coupon Rate -The annual Coupon/Face Value of Bond Maturity -Specific date the bond principle must be repaid Time to Maturity -The Number of Years Until Maturity Practice Problems: Par Value $1,000 / 10% Coupon 5 Years to Maturity / Markey Yield 8% WE NEVER DISCOUNT AT THE COUPON RATE
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ALWAYS DISCOUNT AT MARKET RATE 0      1        2       3        4       5 --------------------------------------      100     100   100    100    100                                          1,000 PV OF Interest Payments @ 8%   $399.27 PV OF Principle @8%                   $680.58 Bond Value….                            $1079.85 The Bond is Selling at a Premium (When the coupon rate is more than the yield  to maturity it sells at a premium, when it’s less then it sells at a discount) When a Bond sells for more than par value it’s selling at a Premium. If it sells for less than par value it’s selling at a discount. Calculator Solution: N=5 I/Y=8% FV= $1000 PMT = 100 Compute PV ---  $1079.85
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Future Value and Payment always have to be the same sign. Present Value is always opposite of Future Value and Payment. Par Value $1,000 Coupon 10% 5 Years to Maturity Market Yield 11% N=5 I/Y=11 FV=1000 Pmt=100 Present Value = $963.04 Bond is selling at a discount. Page 226 Question #3 N=10 I/Y= 8.75 FV=1000 Pmt=75 PV = $918.89 Bond is selling at a discount.
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Bonds Continued Chapter 7 #4
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Bonds Continued In this problem we are trying to find out the Interest Rate 9% of 1,000 = 90 9 years to maturity Current Bond Price = 934.00 Future Value 1,000 Interest Rate = 10.15 N=9 PV=(934) PMT = 90 FV= 1,000 CPT I/Y = 10.15% #5 Trying to find out Coupon rate (1 st  thing is to calculate the payment) 13 Years to maturity Current Bond Price = 1045 Future Value = 1,000
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Bonds Continued N=13 PV = (1045) FV = 1000 I/Y = 7.5 CPT PMT = 80.54 = Coupon Coupon rate = 80.54/1000 = 8.054% #6 ON TEST 10 years to Maturity 1,000 Par or Face Value 6.9 % coupon rate/paid Semi-Annually  7.4 Yield to Maturity N=20 I/Y = 3.70 (7.4/2=3.70) PMT = 34.50 (6.9*1000=69/2=34.50) FV = 1,000 CPT PV = 965.10
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Bonds Continued #7 10 Years to Maturity 1,000 8.4 % Coupon Rate / Paid Semiannually  1,050 Current Bond Price N= 20 (10 *2) PMT=42 (8.4*1000/2=84/2) FV=1,000 PV = (1050) (1,000*105) CPT IY = 3.84 Then multiply 3.84 *2 = 7.67% (Because YTM is yearly) #8 Calculating Payment 14.5*2 = 29 = N PV=(924) FV=1000
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This note was uploaded on 07/21/2011 for the course BUS 1302 taught by Professor Falcon during the Spring '11 term at University of Texas at Dallas, Richardson.

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Notes3 - InterestRatesandBondValuation FaceValueorParValue

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