311 ch7 - Fixed Income Securities Chapter 7 Characteristics...

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Fixed Income Securities Chapter 7
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Characteristics Secured vs. unsecured Senior vs. junior Unsubordinated vs. subordinated Callable Convertible Sinking Funds Ratings Moody’s S&Ps
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Key Features of Bonds Coupon Rate How much interest is paid to the bondholder each year? Maturity How long until the principal is repaid? Face value Amount of principal – also known as par value
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Coupon Rates Coupon rates do not have to be the same as the prevailing interest rate In fact, they usually are not since interest rates can change after the bond has been issued What is the value of the bond when the coupon rate is higher (lower) than the prevailing interest rate?
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Valuation of Bonds Capitalization of Cash Flows Method Find PV of all cash flows Annuity of coupons Lump-sum repayment of principal ( 29 ( 29 = + + + = n t n d t d k M k I P 1 0 1 1
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Special Cases Zero coupon bonds Also known as a pure discount bond
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311 ch7 - Fixed Income Securities Chapter 7 Characteristics...

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