• Essay
    . Typically, a bond can be sold at any time prior to maturity at the market price. This price at time t is denoted by B(t, T ). In particular, B(0, T ) is the current, time 0 price of the bond, and B(T, T ) = 1 is equal to the face value. Again, these prices determine the interest rates by (2.6) and (2.12...
    Premium 6607 Words 27 Pages
  • Work
    interest expense will change as the various assets and liabilities are repriced, that is, receive new interest rates. 4. What is a maturity bucket in the repricing model? Why is the length of time selected for repricing assets and liabilities important when using the repricing model? The...
    Premium 7528 Words 31 Pages
  • Financial Management
    latter two favor the bondholders. • A call provision gives the issuer the right to buy back or “call” all or a part of a bond issue before maturity (under specified terms). An issuer would typically call a bond when interest rates fall below the issue’s coupon rate. Thus, the issuer can retire an issue...
    Premium 4960 Words 20 Pages
  • Tale of Airline
    stated face value of the bond. It represents the amount of money the firm borrows and promises to repay on the maturity date. Coupon Interest Rate: It's the coupon payment -- the fixed number of dollars of interest -- divided by the par value. The coupon payment is fixed at the time of the bond is...
    Premium 4004 Words 17 Pages
  • Moneybankingfinance
    simply reverse the future value calculation. As far as what in°uences present value, the following three things increase the present value of a future payment: 1. A higher future value. 2. A shorter time until the payment 3. A lower interest rate, r. I need to stress again, present value is a key...
    Premium 56045 Words 225 Pages
  • Optimal Capital Structure
    -neutral valuation, and letting f(s; V, VB) denote the density of the first passage time s to VB from V when the drift rate is (r - 8), gives debt with maturity t the value t d(V; VB, t) = f 0 e c(t)[1 - F(s; V, VB)]ds + e p(t)[1-F(t; t V, VB)] (2) + e-rs p(t)VBf(s; V, VB)ds...
    Premium 14070 Words 57 Pages
  • Week 10
    relationship among interest rates of different bonds with the same maturity. B) the structure of how interest rates move over time. C) the relationship among the term to maturity of different bonds. D) the relationship among interest rates on bonds with different maturities. (iv) A plot of the...
    Premium 2006 Words 9 Pages
  • Fins2624-Mockterm-Paper-with-Answers
    denotes the spot rate for time t): r1 r2 r3 r4 r5 = 6% = 8% = 8.5% = 9% = 10% (a) Assume that this term structure is explained by the liquidity theory of the term structure of interest rates. What does this tell you about each of the following (i) (1 mark) the market expectations on future spot...
    Premium 6053 Words 25 Pages
  • Final Exam Cheat Sheet
    bonds; junk bonds; etc. yield curve/term structure of interest rates: graphical representation between the YTM and time-to-maturity (TTM). Historically, long-term rates are often higher than short-term rates (with an upward-sloping yield curve or normal yield curve), but downward-sloping curves can...
    Premium 6867 Words 28 Pages
  • Finance
    the above. (e) Only (a) and (b) of the above. Answer: D 7. Which of the following are generally true of all bonds? (a) The longer a bond’s maturity, the lower is the rate of return that occurs as a result of the increase in an interest rate. (b) Even though a bond has a...
    Premium 35302 Words 142 Pages
  • Business Finance Chp 4 N 6
    bond still has a long term to maturity, its YTM will reflect long-term rates. Of course, the bond's price will be less affected by a change in interest rates if it has been outstanding a long time and matures shortly. While this is true, it should be noted that the YTM will increase only for...
    Premium 3988 Words 16 Pages
  • Finance Study Guide
    value of the firm’s debt, and V=E+D. Note that E/V is the percentage of the firm’s financing that is equity, and D/V is the percentage that is debt. Chapter 6 Acronyms BV = Bond Value -YTM = Yield to Maturity -C = Coupon payment; c = coupon rate -T = Time to maturity -FV = Face Value/Par Value...
    Premium 4509 Words 19 Pages
  • Test Bank Ch 1
    individual or business to purchase a home, land or other real property C) short term funds transferred between financial institutions usually for no more than one day D) a marketable bank issued time deposit that specifies the interest rate earned and a fixed maturity date E) short term unsecured...
    Premium 3760 Words 16 Pages
  • Financial Accounting
    RISES ABOVE PAR, OR TO A PREMIUM. FURTHER, THE LONGER THE MATURITY, THE GREATER THE PRICE EFFECT OF ANY GIVEN INTEREST RATE CHANGE. E. 3. WHAT WOULD HAPPEN TO THE VALUE OF THE 10-YEAR BOND OVER TIME IF THE REQUIRED RATE OF RETURN REMAINED AT 13 PERCENT, OR IF IT REMAINED AT 7 PERCENT...
    Premium 8907 Words 36 Pages
  • Fin509A Test 1 Study Guide
    problem, amortization schedule on a loan, annuity due, non-annual compounding periods, loan payoff amount, 15-30 year mortgage, refinance your mortgage, pay a point?, % down?, after-tax interest rate, interest rates and inflation, default premium, liquidity premium, maturity premium, bond valuation...
    Premium 3534 Words 15 Pages
  • Belgacom Case Study
    the best interest of the company (Belgacom here) to reimburse the bridge loan as quickly as possible because it is very expensive and the interest rate generally increases with the maturity. Moreover issuing corporate bonds takes time. In fact, there are four main steps to issue a bond in the...
    Premium 4218 Words 17 Pages
  • financial markets
    traded Treasury security of its maturity.Because on-the-run issues are the most liquid, they typically trade at a slight premium and therefore yield a little less than their off-the-run counterparts Off the run rates: the interest rate of off-the-run bonds, which refer to Treasury bonds and notes...
    Premium 2571 Words 11 Pages
  • Repo Rate
    collateral rate (when R < r). On the run: The most recently issued Treasury security of a given original term to maturity—for example, the on-the-run ten-year Treasury note. Reopening: A Treasury sale of an existing bond that increases the amount outstanding. Repo: A repurchase agreement transaction that...
    Premium 11684 Words 47 Pages
  • Econ 203
    when Investment increases, Y increases because Y = C + I+ G +NX. Therefore for any give prive level, say P1 for example, Y has increased 5. When Y increases from Y1 to Y2, money demanded shifts up and interest rate rises **EXTREMELY IMPORTANT CHART** What will cause the...
    Premium 7104 Words 29 Pages
  • Financial Markets and Institution
    what will happen to interest rates if prices in the bond market become more volatile. Chapter 4 Why Do Interest Rates Change? 87 Q U A N T I TAT I V E P R O B L E M S 1. You own a $1,000-par zero-coupon bond that has five years of remaining maturity. You plan on selling the bond in one year...
    Premium 262641 Words 1051 Pages