Bond Valuation

Bond Valuation - Bond Valuation 1 Most bonds are coupon...

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Unformatted text preview: Bond Valuation 1 Most bonds are coupon bonds paying a coupon to the holder. The annual coupon payments are generally fixed over the life of the bond, and are paid semi-annually. The face value is the lump-sum principal payment received when the bond matures; it is generally set at $1,000 for U.S. bonds. The coupon rate is based on the market conditions at the time the bond was issued so that it was priced at par (+/-). Post-issuance, market rates and risk premiums change; however, the coupon rate remains fixed. Over the life of the bond, as it changes hands amongst investors in the secondary market, the price of the bond Bond Valuation 2 Using time-value-of-money formulas, the bond price is: P0 = Price at t =0, or the present value of the bond + = r) (1 1- 1 r C P t r) (1 F t + + Bond Valuation Example 3 Say you are considering buying a bond that pays a 10% semi-annual coupon which matures in 12 years and has a face value of $1,000....
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

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Bond Valuation - Bond Valuation 1 Most bonds are coupon...

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