Valuing A Bond

Valuing A Bond - Valuing A Bond In order to value(price a...

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Valuing A Bond In order to value (price) a bond today, we need the following information: Face Value Coupon Rate The % of face paid out annually . Number of periods remaining until maturity Not necessarily years! Market Rate For bonds with similar risk and features. 1
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Valuing A Bond Suppose you have the opportunity to buy a 30-year bond with the following features: $1,000 face value 10% coupon rate Pays semi-annual coupon payments Matures in 8 years How much would you be willing to pay for this bond if you require a 12% return ? 2
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Valuing A Bond How much would you be willing to pay for this bond? You would be willing to pay an amount equal to the present value of the expected cash flows. 3 $1,000 face value 10% coupon rate Pays semi-annual coupon payments Matures in 8 years 12% required rate of return
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This is the time line for the bond’s cash flows you are considering buying: Number of Periods Remaining (8 years) (2 payments/year) = 16 periods 4 0 1 2 3                 16              0              1 $? = $1,000 face value
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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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Valuing A Bond - Valuing A Bond In order to value(price a...

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