Chapter 7 Interest Rates and Bond valuation 0
0 Chapter 7 Interest Rates and Bond Valuation
Chapter Outline Bonds and Bond valuation ■More on Bond Features o Bond Ratings ■、 Some Different Types of Bonds ■Bond Markets -Inflation and Interest Rates Determinants of Bond Yields
1 Chapter Outline n Bonds and Bond Valuation n More on Bond Features n Bond Ratings n Some Different Types of Bonds n Bond Markets n Inflation and Interest Rates n Determinants of Bond Yields
Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand the impact of inflation on interest rates Understand the term structure of interest rates and the determinants of bond yields
2 Key Concepts and Skills n Know the important bond features and bond types n Understand bond values and why they fluctuate n Understand bond ratings and what they mean n Understand the impact of inflation on interest rates n Understand the term structure of interest rates and the determinants of bond yields
Bond Definitions Bond Par value (face value) ■Coupon rate ■Coupon payment Maturity date Yield or Yield to maturity 3
3 Bond Definitions n Bond n Par value (face value) n Coupon rate n Coupon payment n Maturity date n Yield or Yield to maturity
PV of Cash Flows as rates change Bond Value PV of coupons PV of par Bond Value PV annuity PV of lump sum Remember,as interest rates increase,the PVs decrease So,as interest rates increase,bond prices decrease and vice versa 4
4 PV of Cash Flows as Rates Change n Bond Value = PV of coupons + PV of par n Bond Value = PV annuity + PV of lump sum n Remember, as interest rates increase, the PVs decrease n So, as interest rates increase, bond prices decrease and vice versa