lecture 19 - Business Finance Lecture 19 Review of the...

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104 Business Finance Lecture 19 Review of the previous Lecture | Valuing Bonds z Discount bonds z Premium bonds z Semiannual Coupons | Interest Rate Risk Topics under Discussion | Bond price Theorems | Finding Yield to Maturity | Debt vs Equity | Bond Indenture z Terms of a bonds z Security Bond Pricing Theorems | The following statements about bond pricing are always true. z 1. Bond prices and market interest rates move in opposite directions. z 2. When a bond’s coupon rate is (greater than / equal to / less than) the market’s required return, the bond’s market value will be (greater than / equal to / less than) its par value. Bond Pricing Theorems | The following statements about bond pricing are always true. z 3. Given two bonds identical but for maturity, the price of the longer-term bond will change more than that of the shorter-term bond, for a given change in market interest rates. z 4. Given two bonds identical but for coupon, the price of the lower-coupon bond will change more than that of the higher-coupon bond, for a given change in market interest rates.
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105 Finding the Yield to Maturity | We have seen that the price of a bond can be written as the sum of its annuity and lump sum components. | Knowing that there is an $80 coupon rate for 6 years and a $1000 face value, the price of the bond is: $995.14 = $80 x [1 – 1/(1 + r) 6 ]/r + 1000 / (1 + r) 6 r is the unknown discount rate or the yield to maturity
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This note was uploaded on 08/04/2011 for the course ACCT 501 taught by Professor Na during the Spring '11 term at Virtual University of Pakistan.

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lecture 19 - Business Finance Lecture 19 Review of the...

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