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Published byVerawati Darmali Modified over 6 years ago
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Chapter 8 Contents 1 Using Present Value Formulas to Value Known Flows
2 The Basic Building Blocks: Pure Discount Bonds 3 Coupon Bonds, Current Yield, and Yield-to- Maturity 4 Reading Bond Listings 5 Why Yields for the same Maturity Differ 6 The Behavior of Bond Prices Over Time
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Bond Prices Rise as the Interest Rates Fall
Write the PV of the fixed income security as the sum terms
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Pure Discount Bonds The pure discount bond is an example of the present value of a lump sum equation we analyzed in Chapter 4 Solving this, the yield-to-maturity on a pure discount bond is given by the relationship:
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Pure Discount Bonds In this equation,
P is the present value or price of the bond F is the face or future value n is the investment period i is the yield-to-maturity
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Pure Discount Bonds
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Bonds Trading at Par Bond Pricing Principle #1: (Par Bonds)
If a bond’s price equals its face value, then its yield-to-maturity = current yield = coupon rate Proof:
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First Solution Method
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Second Solution Method
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The YTM of the Coupon Bond
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