Bonds and Their Valuation.ppt

KeyFeaturesofaBond1. Parvalue:Faceamount;paid $1,. Couponinterestrate:Stated toget$ . Maturity:Yearsuntilbond . Issuedate:Datewhenbond “callprovision”affectabond?,borrowersarewillingtopaymore,andlendersrequiremore,’sasinkingfund?,. Callx%atparperyearforsinking . ()()()PV=CF1+k...+CF1+...+++Thediscountrate(ki)istheopportunitycostofcapital,.,=k*+IP+LP+MRP+’sthevalueofa10-year,10%couponbondifkd=10%?()()()VkkBdd=$100$1,1000111010...+$1001+kd1001000121010%100+1,000V=?...=$+...+$+$=$1,000.++++10 10 1001000 N I/YR PV PMT FV -1,000Thebondconsistsofa10-year,10%annuityof$100/yearplusa$1,000lumpsumatt=10:$ $1,===INPUTSOUTPUT10 13 1001000 N I/YR PV PMTFV -,abovethecouponrate,thebond’svaluefallsbelowpar,%,causingk=13%?INPUTSOUTPUT