Finance bonds

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Author:
bobjr247
ID:
108226
Filename:
Finance bonds
Updated:
2011-10-11 20:00:00
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chapter
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Description:
ch. 6
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  1. Coupon
    regular interest payments that borrower pays
  2. level coupon bond
    constant coupon paid every year.
  3. Face value/Par value
    Amount that will be repaid/principal paid at maturity
  4. Coupon rate
    annual coupon divided by face value (120/1000=.12)
  5. Coupon payment
    stated interest on bond
  6. Maturity
    # of years until face value repaid
  7. As interest rates increase, the present values_____
    declines (worth less/interest rates increase bond prices decrease)
  8. When interest rates fall, the bond is worth______
    More
  9. Yield or Yield to maturity (YTM)
    rate required in the market
  10. Current Yield
    Annual Coupon/Price
  11. Bond value =
    • PV of coupons + PV of par value
    • or
    • PV of annuity +PV of lump sum
  12. Consider a bond with a coupon rate
    of 10% and annual coupons. The par value is $1,000 and the bond has 5 years to
    maturity. The yield to maturity is 11%. What is the value of the bond?
    N =5; I/Y = 11; PMT = 100; FV = 1,000

    CPT PV = -963.04
  13. Discount bond
    bond sells for less than face value
  14. §Suppose you are looking at a bond
    that has a 10% annual coupon and a face value of $1000. There are 20 years to
    maturity and the yield to maturity is 8%. What is the price of this bond?
    N =20; I/Y = 8; PMT = 100; FV = 1000

    • CPTPV = -1,196.36
    • premium
  15. 1.If YTM = coupon rate, then par
    value =_____
    bond price
  16. 1.If YTM > coupon rate, then par
    value > ______
    bond price
  17. If YTM < coupon rate, then par value <______
    bond price
  18. Let
    the Coupon rate = 14% with semiannual coupons; YTM = 16%; Maturity = 7 years; Par value = $1,000

    What is the bond worth now?
    1.How many coupon payments are there?
    2.What is the semiannual coupon
    payment?
    3.What is the semiannual yield?
    • PMT = 70; N = 14; I/Y = 8; FV =
    • 1,000; CPT PV = -917.56

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