6 INTEREST RATES AND BOND VALUATION L E A R N I N G LG1 Describe interest rate fundamentals‚ the term structure of interest rates‚ and risk premiums. LG2 Review the legal aspects of bond financing and bond cost. LG3 LG4 Discuss the general features‚ quotations‚ ratings‚ popular types‚ and international issues of corporate bonds. LG5 LG6 G O A L S Apply the basic valuation model to bonds and describe the impact of required return and time to maturity on bond
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October 2014 Bond Pricing Qu 1: Time to Maturity Zero Coupon Rate Discount Factor 1 5% 2 6% 3 7% 4 8% 5 9% Give the formula for the discount factor in terms of the zero coupon rate. Use the formula to fill in the discount factors in the table above (you can write the formula or using excel calculate the numerical value). Assume that the government wishes to issue a new 5 year bond priced at 100 (called a par coupon bond as it is priced at par i.e. the price is the same as the face value) given the
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Chapter 14 Bond Prices and Yields Multiple Choice Questions 1. The current yield on a bond is equal to ________. A. annual interest divided by the current market price B. the yield to maturity C. annual interest divided by the par value D. the internal rate of return E. none of the above A is current yield and is quoted as such in the financial press. Difficulty: Easy 2. If a 7% coupon bond is trading for $975.00‚ it has a current yield of ____________ percent. A. 7.00 B. 6.53 C. 7.24
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Chapter 1 Role of Financial Markets and Institutions 1. Financial market participants who provide funds are called A) deficit units. B) surplus units. C) primary units. D) secondary units. 2. The main provider(s) of funds to the U.S. Treasury is (are) A) households and businesses. B) foreign financial institutions
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To: David Rogers From: JMSB Analysis Group Date: December 2009 Group members: Jun Gao Jiaqi Yin Qing Zhang Antoine Vulcain Main issues: Evaluation of two possible products: 1. NPV of two possible products 2. WACC analysis --CPAM --Bond yield plus Recommendation: Product B(aircraft) will be suggested due to the situation of the company. ---If there are enough funds for the company‚ product A is also acceptable
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Securities Chapters in this Part Chapter 6 Interest Rates and Bond Valuation Chapter 7 Stock Valuation Integrative Case 3: Encore International © 2012 Pearson Education‚ Inc. Publishing as Prentice Hall Chapter 6 Interest Rates and Bond Valuation Instructor’s Resources Overview This chapter begins with a thorough discussion of interest rates‚ yield curves‚ and their relationship to required returns. Features of the major types of bond issues are presented along with their legal
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Assignment #1 Question 1 Consider the following data. The column marked n gives the price today of one dollar delivered in half-year n‚ i.e.‚ 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
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The Eyes Have It (also known as The Girl on the Train & The Eyes Are Not Here) is a short story by Ruskin Bond that was originally published in Contemporary Indian English Stories. The narrator of this story‚ a blind man whose eyes were sensitive only to light and darkness‚ was going to Dehradun by train when he met a girl and had a chit-chat with her. It was only after she left and another passenger came into the compartment that the narrator realizes the girl was blind. Up to Rohana‚ the narrator
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6pm 1. A lender plans to invest $100m for 150 days‚ 60 days from today. (That is‚ if today is day 0‚ the loan will be initiated on day 60 and will mature on day 210.) The implied forward rate over 150 days‚ and hence the rate on 150-day FRA‚ is 2.5%. The actual interest rate over that period could be either 2.4% or 2.6%. (a) If the interest rate on day 60 is 2.6%‚ how much will the lender have to pay if the FRA is settled on day 60? How much if it is settled on day 210? (b) If the interest rate
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Bonds and Their Valuation After reading this chapter‚ students should be able to: • List the four main classifications of bonds and differentiate among them. • Identify the key characteristics common to all bonds. • Calculate the value of a bond with annual or semiannual interest payments. • Explain why the market value of an outstanding fixed-rate bond will fall when interest rates rise on new bonds of equal risk‚ or vice versa. • Calculate the current yield
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