Lecture 6

Use the r investors are demanding on comparable

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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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