EC3333 Notes06 - Lecture Notes 05 Bond Prices and Yields 1...

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Unformatted text preview: Lecture Notes 05 Bond Prices and Yields 1 1 A bond is a security issued in connection with a borrowing arrangement The borrower issues (sells) a bond to the lender for some amount of cash The arrangement obligates the issuer to make specified payments to the bondholder on specified dates ◦ Coupon payment: coupon rate, interest payment ◦ Par value: face value Bond Characteristics 2 2 Straight bonds Floating rate bonds Convertible bonds Callable bonds Puttable bonds Others Types of Bonds 3 3 P B = Price of the bond C t = coupon payments of period t T = number of periods to maturity r = interest rate Bond Pricing: Present value T T t t t B r Value Par r C P ) 1 ( ) 1 ( 1 4 4 P B = Price of the bond C t = coupon payments of year t T = number of years to maturity r = annual interest rate Price (Value) of an Annual Bond T T t t t B r Value Par r C P ) 1 ( ) 1 ( 1 5 5 P B = Price of the bond C t = coupon payments of year t...
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This note was uploaded on 10/30/2011 for the course ECON EC3333 taught by Professor Lu during the Spring '11 term at National University of Singapore.

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EC3333 Notes06 - Lecture Notes 05 Bond Prices and Yields 1...

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