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Unformatted text preview: nt analysis can be done in terms of real or nominal cash flows, but discount rates have to be
– Real discount rate for real cash flows
Nominal discount rate for nominal cash flows Download free ebooks at bookboon.com
16 Corporate Finance Present value and opportunity cost of capital 3.8 Valuing bonds using present value formulas
A bond is a debt contract that specifies a fixed set of cash flows which the issuer has to pay to the
bondholder. The cash flows consist of a coupon (interest) payment until maturity as well as repayment of
the par value of the bond at maturity.
The value of a bond is equal to the present value of the future cash flows:
(11) Value of bond = PV(cash flows) = PV(coupons) + PV(par value) Please click the advert Since the coupons are constant over time and received for a fixed time period the present value can be
found by applying the annuity formula: In Paris or Online
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- Spring '12