公司理财第版Chap006.pptVIP

* * Notice how we obtain the same value despite calculating the bond’s price two different ways. * When the interest rate rises, the present value of the payments to be received by the bondholder falls and bond prices fall. When the interest rate decreases, the present value of the payments to be received by the bondholder increases and bond prices rise. Interest rate risk – The risk in bond prices due to fluctuations in interest rates. * Current Yield – Annual coupon payments divided by bond price. Yield to Maturity – Interest rate for which the present value of the bond’s payments equals the price. * Current Yield – Annual coupon payments divided by bond price. * Yield to Maturity – Interest rate for which the present value of the bond’s payments equals the price. * Note: Solve yield to maturity using a spreadsheet or a financial calculator. See the Appendix of Chapter 8 for help on this type of problem (which is essentially an internal rate of return) * A bond’s yield to maturity is only helpful if the investor plans on holding the bond until it matures. A bond’s rate of return can be calculated regardless of how long the bond is held. Rate of return – Total income per period per dollar invested. * Note: If the investor held the bond all 5 years until maturity, the rate of return would equal the yield to maturity. * Yield Curve – Plot of the relationship between bond yields to maturity and time to maturity. The yield curve usually slopes upwards, implying that long term bonds generally earn higher yields than short-term bonds. When interest rates are expected to rise, the yield curve is often upward sloping. * * * McGraw-Hill/Irwin Copyright ? 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 咯筐典爷舅审氦旺祥质慌川宙娃离茵弓穿环胆骗质蝇棕地蔼渐渠谆悠壮妥公司理财第七版Chap006公司理财第七版Chap006 Valuing Bonds A bond is a debt instrument issued by governments or corporations to raise money The successful investor must be able to: Understand bond structure Calculate bond rates of return U