1 / 18

Chapter 8 Contents

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.

jeb
Download Presentation

Chapter 8 Contents

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 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

  2. Bond Prices Rise as the Interest Rates Fall • Write the PV of the fixed income security as the sum terms

  3. 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:

  4. 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

  5. Pure Discount Bonds

  6. 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:

  7. First Solution Method

  8. Second Solution Method

  9. The YTM of the Coupon Bond

More Related