债券市场分析与策略第7版答案2.doc

CHAPTER 2 PRICING OF BONDS CHAPTER SUMMARY This chapter will focus on the time value of money and how to calculate the price of a bond. When pricing a bond it is necessary to estimate the expected cash flows and determine the appropriate yield at which to discount the expected cash flows. Among other aspects of a bond, we will look at the reasons why the price of a bond changes REVIEW OF TIME VALUE OF MONEY Money has time value because of the opportunity to invest it at some interest rate. Future Value The future value of any sum of money invested today is: Pn = P0(1+r)n where n = number of periods, Pn = future value n periods from now (in dollars), P0 = original principal (in dollars), r = interest rate per period (in decimal form), and the expression (1+r)n represents the future value of $1 invested today for n periods at a compounding rate of r. When interest is paid more than one time per year, both the interest rate and the number of periods used to compute the future value must be adjusted as follows: r = annual interest rate / number of times interest paid per year, and n = number of times interest paid per year times number of years. The higher future value when interest is paid semiannually, as opposed to annually, reflects the greater opportunity for reinvesting the interest paid. Future Value of an Ordinary Annuity When the same amount of money is invested periodically, it is referred to as an annuity. When the first investment occurs one period from now, it is referred to as an ordinary annuity. The equation for the future value of an ordinary annuity is: Pn = where A is the amount of the annuity (in dollars). Example of Future Value of an Ordinary Annuity Using Annual Interest: If A = $2,000,000, r = 0.08, and n = 15, then Pn = ( P15 = = $2,000,000[27.152125] = $54,304.250. Because 15($2,000,000) = $30,000,000 of this future value represents the total dollar amount of annual interest payments made by the issuer and invested by the portfolio manager, th