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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 semiannually. The face value is the lumpsum 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 (+/). Postissuance, 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 timevalueofmoney 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% semiannual 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.
 Spring '12
 PatriciaRobertson
 Valuation

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