chapter 8 ppt - CHAPTER 8 Bond Valuation and Risk 1 CHAPTER...

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1 CHAPTER 8 Bond Valuation and Risk
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2 CHAPTER 8 OVERVIEW This chapter will: A. Explain how debt securities are priced B. Identify the factors that affect bond prices C. Explain how the sensitivity of bond prices to interest rates is dependent on particular bond characteristics D. Explain the benefits of diversifying bonds internationally
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3 A. Bond Valuation Process 1. Bond Valuation Pricing formula: where C = coupon payment paid in each period Par= par value k = required rate of return n = number of period to maturity       n k par C k C k C PV 1 ... 1 1 2 1
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4 A. Bond Valuation Process 2. Impact of the Discount Rate on Bond Valuation a. Critical to accurate bond valuation b. High risk securities have higher discount rates
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5 A. Bond Valuation Process 3. Impact of the Timing of Payments on Bond Valuation a. Timing affects the market price of a bond b. Funds received sooner can be reinvested to earn additional returns c. Most bonds have semiannual coupons
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This note was uploaded on 09/21/2011 for the course FINANCE 3321 taught by Professor Jianjundu during the Fall '11 term at University of Houston-Victoria.

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chapter 8 ppt - CHAPTER 8 Bond Valuation and Risk 1 CHAPTER...

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