Chapter 7

Chapter 7 Interest Rates and lodge Valuation stick by 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 onenessy, the investor receives a legaI claim on early cash flows of the borrower. The issuer promises to: Make timed verifier payments every check until the bond matures, and Pay the seem/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 work on behalf of the lenders (bondholders). Bond take account = Present pulsation of the Coupons + Present evaluate 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 brass assess N = number of periods until the bo nd matures rd = the food 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 touch sensation handle this: Time 0 1 2 3 4 5 Coupons$80$80$80$80$80 Face Value $ 1000 Market expenditure $____ How much is this bond worth? It depends on the level of circulating(prenominal) market interest orders. If the going invest 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) suppose a bond presently sells for $932.90. It pays an yearbook 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 sound 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 price 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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