文档介绍：Objective
Explain the principles of bond pricing
Understand the features that affect
bond prices
Chapter 8. Valuation of Known Cash Flows: Bonds
Chapter 8 Contents
Using Present Value Formulas to Value Known Flows
The Basic Building Blocks: Pure Discount Bonds
Coupon Bonds, Current Yield, and Yield-To-Maturity
Reading Bond Listings
Why Yields for the Same Maturity Differ
The Behavior of Bond Prices over Time
Valuation and Fixed-e Securities
Essence of valuation process
Valuation models
Fixed-e securities and other contracts promising a stream of known future cash payments
Bonds
Mortgages
Pension annuities
Reasons for Valuing Fixed-e Securities
To have an agreed-upon valuation procedure in setting the terms of the contracts at the outset.
To revaluate the securities when they are sold before maturity.
Using Present Value Formulas to Value Known Cash Flows
A fixed-e security that promises to pay $100 each year for the next three years.
The appropriate discount rate is 6% per year.
An hour after you buy the security, the risk-free interest rate rises from 6% to 7% per year.
Bond Prices Fall as the Interest Rates Rise
Write the PV of the fixed-e security as the sum terms
The Difficulty of Valuation of Known Cash Flows
We do not know usually which discount rate to use in the present value formula.
Is it correct to use the interest rate corresponding to a three-year maturity in valuing the three-year annuity in the previous example?
The Basic Building Blocks: Pure Discount Bonds
The difficulties of finding equivalent fixed-e securities, parables and making adjustments for differences.
Any fixed-e security can be posed into a series of known payments at different time points in the future.
Pure discount bonds (zero-coupon bonds): Promising a single payment of cash at the maturity date (in the future).
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-