# 1 n9 pv 149493 pmt 100 fv 1100 and press the compute

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1.N=9, PV = -1,494.93, PMT = 100, FV = 1100 and press the Compute key and then the I/YR key.4.“In the balance of this chapter, we assume that bonds are not callable unless otherwise noted.”74. Changes in Bond Values Over Time1.“When a coupon bond is issued, the coupon is generally set at a level that causes the bond’s market price to equal its par value.” 2.“A bond that has just been issued is known as a new issue. Once it has been issued, it is an outstanding bond, also called a seasoned issue.”75. Bonds with Semiannual Coupons
1.“Although some bonds pay interest annually, the vast majority actually make payments semi-annually.2.“When the going (nominal) rate is rd = 5% with semiannual compounding, thevalue of a 15-year, 10% semiannual coupon bond that pays \$50 interest every 6 months is found as follows:”1.N = 30, I/YR = 2.5, PMT = 50, FV = 1000 and press the Compute key andthen the PV key.3.“Alternatively, when we know the price of a semiannual bond, we can easily back out the bond’s nominal yield to maturity.”4.“In the previous example, if you were told that a 15-year bond with a 10% semiannual coupon was selling for \$1,523.26, you could solve for the bond’s periodic interest rate as follows:”1.N = 30, PV = -1,523,26, PMT = 50, FV = 1000 and press the Compute keyand then the I/YR key.76. Assessing A Bond’s Riskiness1.Price Risk: “The risk of a decline in a bond’s price due to an increase in interest rates.”1.“Price risk is higher on bonds that have long maturities than on bonds that will mature in the near future.”2.“For bonds with similar coupons … the longer a bond’s maturity the more its price changes in response to a given change in interest rates.”2.Reinvestment Risk: “The risk that a decline in interest rates will lead to a decline in income from a bond portfolio.”1.“For example, consider a retiree who has a bond portfolio and lives of the income it produces. The bonds in the portfolio, on average, have coupon rates of 10%. Now suppose interest rates decline to 5%. Many of the bonds will mature or be called; as this occurs, the bondholder will have to replace 10% bonds with 5% bonds. Thus, the retiree will suffer a reduction of income.”3.Comparing Price Risk and Reinvestment Risk1.“Note that price risk relates to the current market value of the bond portfolio, while reinvestment risk relates to the income the portfolio produces.”2.“Which type of risk is “more relevant” to a given investor depends critically on how long the investor plants to hold the bonds – this is often referred to as his or her investment horizon.”3.The longer a bond is held the greater is the reinvestment risk.77. Default Risk1.“Potential default is another important risk that bondholders face. If the issuerdefaults, investors will receive less than the promised return.”
2.Various Types of Corporate Bonds