Bond Value and Yields

Bond Value and Yields - Bond Value and Yields Many bonds...

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Bond Value and Yields Many bonds have original maturities up to 30 years. The coupon rate is based on the market conditions at the time it is issued and the bond’s risk factors. Most new bonds sells at (+/-) face value ( par bond ). 1
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Valuing A Par Bond A bond is selling at par if the coupon rate is the same as the required rate of return: $1,000 face value 10% coupon rate Pays semi-annual coupon payments Matures in 8 years 10% required rate of return 2 $1,000.00 0.05) (1 $1,000 0.05) (1 1 - 1 0.05 $50 Bond of Value 16 16 = + + + =
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Bond Value and Yields Bonds are initially sold in the primary markets . At any point in time, investors trade (buy and sell) outstanding bonds in the secondary market . The original issuer receives no additional funds. Post-issuance, the market rate for a bond will change, up or down, since investors 3
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Bond Cash Flows If you buy a $1,000, 12% bond with semi-annual compounding for 10 years, the cash flows would be: What is the present value of these cash flows?
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