1-30 Notes BF - 1/30/08 Business Finance Notes Bond...

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1/30/08 Business Finance Notes Bond Valuation o Coupon How much the bond pays o Maturity How long it takes the bond to yield its par value o Par Value The face value, or the amount of money you will receive upon maturity o (See 1/30 #1) Typical Bond Features o Coupon rate= (Coupon) Face Value o Interest Rate Risk Price Risk Change in price due to changes in interest rates Long-term bonds have more price risk than short-term bonds Low coupon rate bonds have more price risk than high coupon rate bonds Reinvestment Rate Risk Uncertainty concerning rate at which cash flows can be reinvested Short term bonds have more reinvestment rate risk than long term bonds High coupon rate bonds have more reinvestment rate risk than short term bonds o Computing Yield-to-Maturity YTM is the rate implied by the current bond price Finding the YTM requires trial and error if you do not have a financial calculator and is similar to finding the rate
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This note was uploaded on 04/07/2008 for the course BA 3341 taught by Professor Polkovnichenko during the Spring '08 term at University of Texas at Dallas, Richardson.

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1-30 Notes BF - 1/30/08 Business Finance Notes Bond...

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