CH-7 - GSB 531 Managerial Finance Chapter 7 Interest Rates...

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1 GSB 531 Managerial Finance Chapter 7 Interest Rates and Bond Valuation Contents • Bond Basics • Bond Valuation • Interest Rate Risk • Bond Types • Bond Ratings • Bond Features • Bond Markets • Interest Rates, Inflation, and Term Structure Bond Basics Coupons (annual, semiannual, …) Face Value, Par Value Zero-Coupon Bond Maturity Coupon Rate = Annual Coupon / Face Value Yield to Maturity (YTM) or “yield”: the interest rate required in the market on a bond.
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2 Example ± A treasury bond with a $10,000 face value, a coupon rate of 5.25% and a maturity date of Aug. 15, 2003. ± Annual coupon payment is $10,000 X 5.25% = $525 ± $525 / 2 = $262.50 ± An actual coupon payment of $262.50 every six months Semiannual Coupons Finding the Yield to Maturity (YTM)
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3 Bond Valuation Interest Rate Risk • The longer the time to maturity, the greater the interest rate risk. • The lower the coupon rate, the greater the interest rate risk. Bond Types
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This note was uploaded on 11/30/2011 for the course GSB 531 taught by Professor Bing during the Spring '11 term at Cal Poly.

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CH-7 - GSB 531 Managerial Finance Chapter 7 Interest Rates...

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