CBondPrices08Zero-Coupon Bonds or Discount BondsExamples.Assumei=4%Price of a One-Year Treasury Bill100 = $96.15(1 + 0.04)Price of a Six-Month Treasury Bill100(1 + 0.04)/2 = $98.066-6
6-6 Bond Prices Zero-Coupon Bonds or Discount Bonds Examples. Assume i=4% Price of a One-Year Treasury Bill. Price of a Six-Month Treasury Bill $96.15 (1 0.04) 100 = + = $98.06 (1 0.04) 100 1/ 2 = + =
BondPricesOZero-Coupon Bonds or Discount BondsGiven n, the price of a bond and theinterest rate move inoppositedirections6-7
6-7 Bond Prices Zero-Coupon Bonds or Discount Bonds Given n, the price of a bond and the interest rate move in opposite directions
BondPrices083.Fixed Payment LoansValue of a Fixed Payment Loan :FixedPaymentFixedPaymentt,FixedPayment(1+i)?(1+i)(1+i)n6-8
6-8 Bond Prices 3. Fixed Payment Loans Value of a Fixed Payment Loan = n i FixedPayment i FixedPayment i FixedPayment (1 ) (1 ) (1 ) 2 + + + + + +
CBond Prices08Coupon BondCouponPaymentFaceValueCouponPaymentCouponPaymentPcB+(1+i)2(1+i))(1+i)"(1+i)n6-9
6-9 Bond Prices Coupon Bond CB n n i FaceValue i CouponPayment i CouponPayment i CouponPayment P (1 ) (1 ) . (1 ) (1 ) 1 2 + + + + + + + + =
BondPricesa4. ConsolsYearly Coupon PaymentPconsol16-10
6-10 Bond Prices 4. Consols i Yearly Coupon Payment PConsol =