Change in Required Rate If your required rate of return increased to 1.6%month PV 二 g a 60 400 0.016 =$15,354.66 THE COURSE OF FINANCE 2017 SPRING SJTU
Change in Required Rate If your required rate of return increased to 1.6% / month THE COURSE OF FINANCE 2017 SPRING SJTU 6 $ 15 ,354 . 66 1 . 016 1 1 0 . 016 400 1 1 1 60 n i i pmt PV
Using Present Value Formulas to Value Known Cash Flows Observe that the maximum you would pay for the bond has decreased -(〕 -+ 60 架-s门 -0.016 -i 400 =$15,752.11 =$15,354.66 Conclusion i PV THE COURSE OF FINANCE 2017 SPRING SJTU
Using Present Value Formulas to Value Known Cash Flows Observe that the maximum you would pay for the bond has decreased THE COURSE OF FINANCE 2017 SPRING SJTU 7 $15,752.11 1.015 1 1 0.015 400 1 1 1 60 n i i pmt PV $15,354.66 1.016 1 1 0.016 400 1 1 1 60 n i i pmt PV Conclusion : i PV
Coupon Bonds Definition A coupon bond obligates the issuer to make periodic payments of interest to the bond holder until the bond matures at which time the face value of the bond is also paid to the bond holder and the contract is satisfied THE COURSE OF FINANCE 2017 SPRING SJTU
Coupon Bonds Definition : A coupon bond obligates the issuer to make periodic payments of interest to the bond holder until the bond matures at which time the face value of the bond is also paid to the bond holder and the contract is satisfied THE COURSE OF FINANCE 2017 SPRING SJTU 8
Characteristics of Coupon Bonc Par value (face value or principal) Coupon rate(interest rate) It is the interest rate applied to the face value to compute the coupon payment Maturity (years) Current yield (coupon/bond price) Yield to Maturity (or discount rate which is also called Yield.If we have the price of the coupon bond,and the timing and magnitude of its future cash flows,so we can determine its YTM or yield. THE COURSE OF FINANCE 2017 SPRING SJTU
Characteristics of Coupon Bond Par value (face value or principal) Coupon rate(interest rate) It is the interest rate applied to the face value to compute the coupon payment Maturity (years) Current yield (coupon/bond price) Yield to Maturity (or discount rate ) which is also called Yield. If we have the price of the coupon bond, and the timing and magnitude of its future cash flows, so we can determine its YTM or yield. THE COURSE OF FINANCE 2017 SPRING SJTU 9
Cash Flows from Coupon Bond 1)Coupon Interests(known) 2)Principal or Par Value or Face Value(known) 1 1 I3+Par 1 2 3 THE COURSE OF FINANCE 2017 SPRING SJTU
Cash Flows from Coupon Bond 1) Coupon Interests(known) 2) Principal or Par Value or Face Value(known) THE COURSE OF FINANCE 2017 SPRING SJTU 10 I1 I2 I3+Par 0 1 2 3