BONDSANDSINKINGFUNDSBondPriceonAnyDate幻灯片.pptVIP

Chapter 15BONDS AND SINKING FUNDS;| | | | ;i=market’s required rate of return/2 =p;Step 1: Calculate the present value of the remaining payment on the preceding interest payment date. For the discount rate, use the market rate of return as of the date of sale.;Price of a Bond (between interest payment dates): The bond price is the future value, on the purchase date, of the remaining payment’s present value at the preceding interest payment date.;Example 1 A $1000, 20-year, 11% coupon bond was issued on August 15, 1994. It was sold on November 3, 1996, to yield the purchaser 8.8% compounded semiannually until maturity. At what price did the bond sell?;| | |;Step 1: Calculate the present value of remaining payments on August 15, 1996.;Step 2: The bond price is the future value of $1196.95 on November 3, 1996. The exact number from August 15, 1996 to November 3, 1996 is 80 days.;bond price = future value of $1196.95;Step 2: Calculate the future value of $947.06 on April 10, 1996. The exact number from January 15 to April 10, 1996 is 86 days. The exact number from January 15 to July 15, 1996 is 182 days.;PMT;Quotation of Bond Prices Even if prevailing interest rates do not change, the price of a bond will change as time passes for two reasons: First, the accrual of interest causes a bond’s price to steadily rise after an interest payment. As a result, the price will abruptly fall by the amount bF on the day interest is paid. The second reason the price will change as time passes is that the premium or discount will diminish.;The size of the premium on any date in Figure 15.6 (P589) is the amount by which the downward-sloping dashed line exceeds $1000 in that date.;;Calculating the Accrued Coupon Interest The prevailing practice is to calculate the accrued coupon interest on a simple-interest basis. That is I = Prt = Fbt