文档介绍：Chapter 7
Interest Rates and Bond Valuation
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. Ale
If YTM > coupon rate, then par value > bond price
Why? The discount provides yield above coupon rate
Price below par value, called a discount bond
If YTM < coupon rate, then par value < bond price
Why? Higher coupon rate causes value above par
Price above par value, called a premium bond
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The Bond Pricing Equation
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Example
Find present values based on the payment period
How many coupon payments are there?
What is the semiannual coupon payment?
What is the semiannual yield?
B = 70[1 – 1/()14] / .08 + 1,000 / ()14 =
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Interest Rate Risk
Price Risk
Change in price due to changes in interest rates
Long-term bonds have more price risk than short-term bonds
Low coupon rate bonds have more price risk than high coupon rate bonds
Reinvestment Rate Risk
Uncertainty concerning rates at which cash flows can be reinvested
Short-term bonds have more reinvestment rate risk than long-term bonds
High coupon rate bonds have more reinvestment rate risk than low coupon rate bonds
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Figure
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Computing Yield to Maturity
Yield to Maturity (YTM) is the rate implied by the current bond price
Finding the YTM requires trial and error if you do not have a financial calculator and is similar to the process for finding r with an annuity
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YTM with Annual Coupons
Consider a bond with a 10% annual coupon rate, 15 years to maturity and a par value of $1,000. The current price is $.
Will the yield be more or less than 10%?
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YTM with Semiannual Coupons
Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of $1,000, 20 years to maturity and is selling for $1,.
Is the YTM more or less than 10%?
What is the semiannual coupon payment?
How many periods are there?
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Table
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Current Yield vs. Yield to Maturity
Current