Chapter 7

Chapter 7 Interest Rates and lodge Valuation fond regard Features Bond - present of debt issued by a corporation or a political body. A stand by represents a loan made by investors to the issuer. In return for his/her m geniusy, the investor receives a legaI claim on early cash flows of the borrower. The issuer promises to: Make stock voucher payments every check until the bond matures, and Pay the expect/par/ adulthood valuate of the bond when it matures. Default - since the higher up mentioned promises are contractual obligations, an issuer who fails to persist them is subject to legal military action on behalf of the lenders (bondholders).

Bond take account = Present stride of the Coupons + Present take account of the Face Value Bond Value = INT [1 (1/(1 + rd)N)]/rd + M * 1/(1 + rd)N where: INT = the promised coupon payment M = the promised nerve assess N = number of periods until the bond matures rd = the markets mandatory return, YTM If a bond has five years to maturity, an $80 yearly coupon, and a $1000 face value, its cash flows would play handle this: Time 0 1 2 3 4 5 Coupons$80$80$80$80$80 Face Value $ 1000 Market bell $____ How much is this bond worth? It depends on the level of circulating(prenominal) market interest orders. If the going pasture on bonds like this one is 10%, then this bond is worth $924.18. 5 N 10 I/Y 80 PMT 1000 FV CPT PV (-924.18) th ink over a bond presently sells for $932.90! . It pays an annual coupon of $70, and it matures in 10 years. It has a face value of $1000. What are its coupon rate, authorized yield, and yield to maturity (YTM)? A.. The coupon rate (or unless coupon) is the annual vaulting horse coupon as a percentage of the face value: Coupon rate = $70 /$1000 = 7% B. The current yield is the annual coupon divided by the current market impairment of the bond: Current yield = $70...If you need to get a full essay, order it on our website: OrderCustomPaper.com

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