1. Bonds Money comes from 3 sources: 1.Debt 2.Common Stock 3.Preferred Stock

2. Bonds DEBT - low risk IOU, pay back principal + interest Allied COMMON - own a piece of the Food STOCK Allied Food Corp. PREFERRED - certificates entitled STOCK to share profit of the company

3. Bonds Bond: (coupon rate=100/1000 = 10%) 100 :interest or coupon 1,000 :par value = FV (face value), 1,000 1 year = n always 1,000 Bond = 1 year to maturity Value (life of the bond)

4. Bonds N 10% Bond Price Calculation: INPUTS I/YRFVPMTPV OUTPUT 11000-100 1000

5. Bonds Bond Price Calculation Example: Bond was bought 5 years ago. 1000 = FV PMT 100 100 100 100 100 1 2 3 4 5 1991 1992 1993 1994 1995 1000 = PV n = 5

6. Yield to Maturity 100 1,000 Yield to Maturity = 12% = K d n = 1 PV = ?

7. Bonds N 12% Bond Price Calculation: INPUTS I/YRFVPMTPV OUTPUT 11000-100 982

8. Bonds ROI Bond Price 10%$1,000 12% $982 8% $1,018 Interest rate Bond price

9. Bonds When Yield to Maturity = K d = ROI = 10% = Coupon Rate, Then Bond price = par value = 1,000. In real estate : refinance, in bond : call provision.

10. Bonds Example: 100 100 100 1,000 1 2 3 Bond value YTM = ROI = 9% Bond price PV = ? = 1,025.3

11. Bonds N 9% Bond Price Calculation: INPUTS I/YRFVPMTPV OUTPUT 31000100 1,025.3

12. Bonds If require ROI = 12% = K ps D PS = 10 V PS = D P s = 10 = 83.3 k ps 0.12