Valuing A Bond

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

This preview shows pages 1–5. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

### Page1 / 14

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

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online