Random Corp Slide Notes

Random Corp Slide Notes - C hapter 7 Slides The yield to...

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Chapter 7 Slides The yield to maturity is the rate of return you will earn if you purchase a bond today at the market price and hold the bond until it matures. This rate assumes the bond issuer pays all interest and principal payments as expected. The yield to maturity is the rate you earn by purchasing a bond today and holding it until it matures. The current yield is the annual interest expressed as a percentage of the current bond price. The first step in this problem is to compute the current bond price. Once you know the bond's price, you can compute the current yield. When market interest rates rise, bond prices fall indicating an inverse relationship between bond prices and market interest rates. The longer the term of the bond, the greater the price movement as longer term bonds have more compounding periods thereby providing a greater opportunity for the interest rate to affect the bond's price. Whenever the market interest rate equals the coupon rate, bonds will sell at par, as seen here When the market rate of interest is less than a bond's coupon rate, the bond will sell at a premium. When the market rate of interest is greater than a

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This note was uploaded on 07/26/2011 for the course FIN 4233 taught by Professor Craig during the Spring '11 term at Arkansas.

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Random Corp Slide Notes - C hapter 7 Slides The yield to...

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