Bond Valuation - handouts

# Bond Valuation - handouts - Bond Valuation Mind Map s Why?:...

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Bond Valuation

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Mind Map Why?: One of the most important sources of financing is the bond market. In the bond market, firm’s raise debt financing directly from investors (i.e., no “middle- man”). For large corporations, this is a primary source of external financing. From a personal finance perspective, bonds account for a very large percentage of retirement savings (especially for older savers).
Mind Map Learning objective: Develop familiarity with bond attributes and terminology Calculate bond values Calculate yields Demonstrate an understanding of bond price sensitivities

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Mind Map Key words/concepts: Par/face value; coupon rate; maturity Yield to maturity (YTM) Annual vs. semi-annual payment Indenture Duration
Warm-up: What are they worth? Suppose you were promised the following cash flow: \$100 in one year, \$100 in two years, \$100 in three years, and \$1000 also in three years. What would these be worth to you if you discounted them at 10%? At 12%?

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Characteristics of Bonds Bonds pay fixed coupon (interest) payments at fixed intervals (usually every 6 months in the U.S.) and pay the par value at maturity . 0 1 2 . . . n \$I \$I \$I \$I \$I \$I+\$M
AT&T 10s of 2011 0 1 2 3 \$100 \$100 \$100+\$1000 par value = \$1000 coupon = 10% of par value per year. =\$100 per year (use annual payments).

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## This note was uploaded on 10/23/2011 for the course BUS M 301 taught by Professor Jimbrau during the Fall '11 term at BYU.

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Bond Valuation - handouts - Bond Valuation Mind Map s Why?:...

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