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Unformatted text preview: • Is the amount of cash it delivers uncertain?
• Possibility of Default (Lecture 7)
• “Risk” (CAPM)
• “Comparable” ﬁnancing (WACC) Today’s Topic:
The yield curve • How does the appropriate “r” differ with the date at which the project delivers cash
to investors? • So far, we assumed one “r”
• discount by 1/(1+r) if cash arrives in n
n period. • What does the bond market say? Bond basics
• A bond is a promise to make a series of payments on
speciﬁc dates. •
• or zero coupon and only principal at maturity (zero
coupon bond) •
• Regular coupon and principal at maturity (a typical
Treasury Bond) or a series of regular equal payments and no
principal left at maturity (many mortgages, car loans,
etc.) Bonds are typically a combination of an annuity and a
single payment at maturity. Bond basics II
• Bonds hav...
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- Fall '05