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Class5_ValuingBonds_15-Sep_04(6slides) - Todays plan Class...

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1 Class 5: Valuing Bonds 2 Today’s plan Bonds - what are they? Zero coupon bonds Eurobonds Compounding revisited fractional periods conventions Bond Valuation Yield to Maturity (YTM) Term Structure of Interest Rates Interest Rates and Inflation (Fisher Effect) 3 What is a bond? A bond is a financial instrument (contract) Main features of a bond: A bond promises to repay a fixed amount ( face amount/par value ) on a specific date in the future ( maturity ) Some bonds make interim payments of interest: for fixed rate bonds, the amounts of the payments ( coupon payments ) and the dates of the payments are known in