CHAPTER 4 BONDS ANND THEIR VALUATION
Bond value--semiannual payment 1. You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your nominal annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond?

N = 20 I/Y = 5 PV = -1124.62 PMT = 60 FV = 1000 Bond value--semiannual payment 2. Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

N = 40 I/Y = 5 PV = -828.41 PMT = 40 FV = 1000

Bond value--semiannual payment 3. A bond that matures in 12 years has a 9 percent semiannual coupon (i.e., the bond pays a $45 coupon every six months) and a face value of $1,000. The bond has a nominal yield to maturity of 8 percent. What is the price of the bond today?

N = 24 I/Y = 4 PV = -1076.23 PMT = 45 FV = 1000

Bond value--semiannual payment 4. A corporate bond with a $1,000 face value pays a $50 coupon every six months. The bond will mature in 10 years, and has a nominal yield to maturity of 9 percent. What is the price of the bond?

N = 20 I/Y = 4.5 PV = -1065.04 PMT = 50 FV = 1000

Yield to maturity--semiannual bond 5. A corporate bond has a face value of $1,000, and pays a $50 coupon every six months (that is, the bond has a 10 percent semiannual coupon). The bond matures in 12 years and sells at a price of $1,080. What is the bond’s nominal yield to maturity?

Yield to maturity--semiannual bond 6. You just purchased a $1,000 par value, 9-year, 7 percent annual coupon bond that pays interest on a semiannual basis. The bond sells for $920. What is the bond’s nominal yield to maturity? N = 18 I/Y = 4.14*2 = 8.28 PV = -920 PMT = 35 FV = 1000 Current...

...ancial Asset Valuation
0 r 1 2 n
...
CF1 CF2 CFn
Value
PV =
CF1
(1+ r )
1
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CF2
(1 + r )
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.
Prof. P. Yourougou
MBC 633 – Managerial Finance
Lect. 03 - 2
Various Interest Rate Measures
Coupon rate Coupon rate
periodic cash flow a bond issuer contractually periodic cash flow a bond issuer contractually promises to pay a bond holder promises to pay a...

...the Time Value of Money to Security Valuation – Valuation of Bonds and Debt Securities
A bond or a debenture is a long term debt instrument carrying a fixed rate of interest which is known to investors. A bond is redeemable after a specified period.
Bonds are also called gilt edged securities or gilt when issued by the government since it is free of default risk.
Features of a Bond or...

...
HW BondValuation and Bond Yields
Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds:
• Bond A has a 7% annual coupon, matures in 12 years, and has a $1000 face value.
• Bond B has a 9% annual coupon, matures in 12 years, and has a $1000 face value.
• Bond C has...

...of a zero coupon bond which pays $1 in half-year n. In the next
two columns there are the cash flows of two bonds, A and B. Essentially, bond A pays a 20%
semi-annual coupon and bond B pays a 10% semi-annual coupon. Both bonds mature in 2.5
years, when each also pays its principal of 100. Assume semi-annual compounding.
Half
Year
1
2
3
4
5
n
Bond A Bond B
.95
.91
.87
.80...

...discusses the valuation of stocks and bonds. It says that in textbooks, the valuation of stocks and bonds is simply stated as the present value of all the future cash flows expected from the security. The concept is logical, straightforward, and simple. The valuation of bonds is usually presented first, since the relatively certain cash flows are broken into an annuity and a payment of the par value at some...

...MBA 8135
Practice BondValuation Problems
SOLUTIONS
1. Calculate the current price of a $1,000 par value bond that has a coupon rate of 6% p.a., pays coupon interest annually, has 14 years remaining to maturity, and has a yield to maturity of 8 percent.
PMT = 60; FV = 1000; N = 14; I = 8; CPT PV = 835.12
2. You intend to purchase a 10-year, $1,000 par value bond that pays interest of $60 every six months. If the yield to maturity...

...BOND PROBLEM SOLUTIONS
1. Six years ago, The Corzine Company sold a 20-year bond issue with a 14 percent annual coupon rate and a 9 percent call premium. Today, Corzine called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price.
PV =...

...Jim Wilcox
Bond Yields, Returns, Risks, and Duration
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•
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Bonds and Loans
Yields and Returns
Price Volatility and Risk in Default-Free Bonds
Measuring Interest Rate Risk
Duration: Types, Calculation, Meaning, Uses
• Next Time: Chapter 11 re: Duration
Week # 2
January 28, 2014
1
Coming Soon!
What We Did
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Week # 2
January 28, 2014
2
Yield to Maturity (YTM):
A Result, Not a Cause!
• YTM =...