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by: Chris Holder

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# Chapter 6 Interest Rates & Bond Valuation FIN 315

Marketplace > Finance > FIN 315 > Chapter 6 Interest Rates Bond Valuation
Chris Holder
UNCG
GPA 3.28

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Includes class examples New and familiar terms such as Time Value of Money Terminology and Bond Valuation . Current Yield Yield To Maturity Yield To Call Investment Risk Callable Bonds
COURSE
PROF.
Dr. Milanese
TYPE
Class Notes
PAGES
3
WORDS
CONCEPTS
FIN315, Bond Valuation, Interest rates
KARMA
25 ?

## Popular in Finance

This 3 page Class Notes was uploaded by Chris Holder on Tuesday April 5, 2016. The Class Notes belongs to FIN 315 at a university taught by Dr. Milanese in Spring 2016. Since its upload, it has received 54 views.

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Date Created: 04/05/16
Chapter 6 Interest Rates and Bond Valuation Time Value Bond Valuation Terms Terms A B C D n Maturity(years) 20 20 20 20 PMT Coupon rate 8% 6% 10% 0% \$1,00 \$1,00 \$1,00 FV par value 0 0 \$1,000 0 \$1,00 803.6 \$1,196. \$214. PV Price 0 4 34 55 YTM(yield to i maturity) 8% 8% 8% 0% CurrentYield(CY)=nnualCouponCouponrate×ParValu) pric( P) A B C D Annual Coupon \$80 \$60 \$100 \$0 \$1,00 803.6 \$1,196. \$214. PV Price 0 4 34 55 80 60 100 0 A= =8 B= =7.47 C= =8.36 D= =0 1000 803.64 1196.34 214.55 When the bond is selling at a discount the YTM < coupon rate (selling price < par value) When the bond is selling at a premium the YTM > coupon rate (selling price > par value) 1. Price risk or interest rate risk a. Rising interest, falling bond price b. Falling interest, rising bond price ( because people don’t want to pay a lot of interest ) 2. Reinvestment Risk a. Greater coupon rate means Greater the reinvestment risk b. Consider option C; if you buy a bond for at a premium at \$1,196.34 it will be harder to sell that bond to someone else for the same price when the par value is \$1000(what the bond is worth) Callable Bonds YTM Bond Valuation BONDYTC 2CallPV -962allable (-------->l P/Y )Call Price 1040 PV -When:MT 35 1000 N FV (10yrs*2 PMT 35 ) 20 Par \$1,00 N 50 0 (25yrs*2 I or ytc 7.8Price \$962 ) Matures (years) 25 7.33 I or ytm Coupon rate (semi-ann.) 7% \$1,04 Callable @ 10 yrs 0 Current Yield = 7.28% Yield to Maturity 7.33% Yield to Call (YTC)= 7.83%

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