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Unformatted text preview: . (Chapter 9) Assets held for trading ARE reported based on market value through a process called markingtomarket. (Chapter 10) Basics of Bond Valuation  Review 4 To understand how book value can significantly differ from market value, we review the inverse relationship between bond prices and interest rates. Bonds will act as a surrogate for loans on the FIs books. The price of a bond is based on the principles of the time value of money. 5 Bond market values (prices) reflect the present value of all promised cash flows discounted at the required rate of return. Cash flows include: Interest (or coupon) payments. Lumpsum payment when the bond matures. Basics of Bond Valuation  Review r) (1 F C ...... r) (1 C r) (1 C r) (1 C P t 3 2 1 + + + + + + + + + =...
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 Spring '12
 PatriciaRobertson
 Interest, Interest Rate

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