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picture1_Financial Presentation Template 73764 | Module 4 1 2g1bsj6


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File: Financial Presentation Template 73764 | Module 4 1 2g1bsj6
8 1 bonds and bond valuation a bond is a legally binding agreement between a borrower and a lender that specifies the par face value coupon rate coupon payment maturity ...

icon picture PPTX Filetype Power Point PPTX | Posted on 01 Sep 2022 | 3 years ago
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    8.1 Bonds and Bond Valuation
    A bond is a legally binding agreement between 
       a borrower and a lender that specifies the:
       Par (face) value
       Coupon rate
       Coupon payment
       Maturity Date
    The yield to maturity is the required market 
       interest rate on the bond.
        This is determined by the market.
                                                             8-2
    Bond Valuation 
    Primary Principle:
        Value of financial securities = PV of expected 
          future cash flows 
    Bond value is, therefore, determined by the 
       present value of the coupon payments and par 
       value.
    Interest rates are inversely related to present 
       (i.e., bond) values.
                                                               8-3
    The Bond-Pricing Equation
                        Cæ         1     ö      F
    Bond Value =           ç1-         T ÷+        T
                         r è    (1+r) ø (1+r)
      You’ve worked with this over the past 3 
      modules!
      Bond Value = (PV annuity) + (PV of a single 
      payment)
                                                           8-4
     Bond Example
        Consider a U.S. government bond with as 6 3/8% 
          coupon that expires in December 2016.
            The Par Value of the bond is $1,000.
            Coupon payments are made semiannually (June 30 and 
             December 31 for this particular bond).
            Since the coupon rate is 6 3/8%, the payment is $31.875.
            On January 1, 2012 the size and timing of cash flows are:
                $31.875      $31.875        $31.875        $1,031.875
                                       
       1/1/12    6/30/12    12/31/12         6/30/16         12/31/16
                                                                         8-5
    Bond Example
    On January 1, 2012, the required yield is 5%.
    The current value is:
            $31.875é         1    ù   $1,000
       PV=           ê1-          ú +         =$1,060.17
                                10          10
              .05 2 ë    (1.025) û   (1.025)
    Or, using our spreadsheets:
                                                             8-6
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...Bonds and bond valuation a is legally binding agreement between borrower lender that specifies the par face value coupon rate payment maturity date yield to required market interest on this determined by primary principle of financial securities pv expected future cash flows therefore present payments rates are inversely related i e values pricing equation c o f t r you ve worked with over past modules annuity single example consider u s government as expires in december made semiannually june for particular since january size timing current or using our spreadsheets...

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