彼得罗斯公司理财Cap008.pptVIP

Interest Rates and Bond Valuation 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 Chapter Outline 8.1 Bonds and Bond Valuation 8.2 Government and Corporate Bonds 8.3 Bond Markets 8.4 Inflation and Interest Rates 8.5 Determinants of Bond Yields 8.1 Bonds and Bond Valuation A bond is a legally binding agreement between a borrower and a lender that specifies the: Par (face) value Coupon rate Coupon payment Maturity Date The yield to maturity is the required market interest rate on the bond. Bond Valuation Primary Principle: Value of financial securities = PV of expected future cash flows Bond value is, therefore, determined by the present value of the coupon payments and par value. Interest rates are inversely related to present (i.e., bond) values. The Bond-Pricing Equation Bond Example Consider a U.S. government bond with as 6 3/8% coupon that expires in December 2013. The Par Value of the bond is $1,000. Coupon payments are made semiannually (June 30 and December 31 for this particular bond). Since the coupon rate is 6 3/8%, the payment is $31.875. On January 1, 2009 the size and timing of cash flows are: Bond Example On January 1, 2009, the required yield is 5%. The current value is: Bond Example: Calculator Bond Example Now assume that the required yield is 11%. How does this change the bond’s price? YTM and Bond Value Bond Concepts Bond prices and market interest rates move in opposite directions. When coupon rate = YTM, price = par value When coupon rate YTM, price par value (premium bond) When coupon rate YTM, price par value (discount bond) 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 h