Corporate-finance

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Unformatted text preview: nternational Marketing DBA in International Business / International Management MA in International Education MA in Cross-Cultural Communication MA in Foreign Languages Innovative – Practical – Flexible – Affordable Visit: www.HorizonsUniversity.org Write: [email protected] Call: 01.42.77.20.66 www.HorizonsUniversity.org Download free ebooks at bookboon.com 17 Corporate Finance (12) Present value and opportunity cost of capital PV(coupons) = coupon · annuity factor Example: - Consider a 10-year US government bond with a par value of $1,000 and a coupon payment of $50. What is the value of the bond if other medium-term US bonds offered a 4% return to investors? Value of bond = PV(Coupon) + PV(Par value) = $50 · [1/0.04 - 1/(0.04·1.0410)] + $1,000 · 1/1.0410 = $50 · 8.1109 + $675.56 = $1,081.1 Thus, if other medium-term US bonds offer a 4% return to investors the price of the 10-year government bond with a coupon interest rate of 5% is $1,081.1. The rate of return on a bond is a mix of the coupon payments and capital gains or losses as the...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.

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