Bodie2eChapter08-Valuation-of-Known--Cash-Flows--Bonds-英文版PPT金融学(第二版)-教学课件.pptVIP

Copyright ? 2009 Pearson Education, Inc. Publishing as Prentice Hall The YTM of the Coupon Bond Observation The yield to maturity on the 3-year pure discount bond was 7.28% and the yield-to-maturity on the 3-year coupon bond was 7.10% The yield-curve for default-free bonds is not a unique value Bond Pricing Principle #2 3 Bond Principle # 2: Premium Bonds bond price face value T ytm current yield coupon rate Bond Principle # 3: Discount Bonds bond price face value T ytm current yield coupon rate Proof of Relationship between YTM and Current Yield For coupon bonds, we have the following relationships Note the (sensible) restrictions on the variable ranges Note that 1/((1+i)^n - 1) is always positive Proof of Relationship between Current and Coupon Yields For coupon bonds, we have the following relationship derived from the bond formula Note that the differences between the reciprocals have the same sign, so the actual differences also have the same sign Note that size relationship is determined by the discount factor which is always 1 How to Remember Principles Imagine that the bond was issued at par the yield-to-maturity moves from the coupon yield in the opposite direction to price the coupon rate is unchanging This diagram may help: High Yield T-Bond Funds Yield curves with large positive slopes make longer-term T-bonds tempting because, like T-bills, they are default-free The above diagram was based on: par = $1000, coupon = $100, n = 10-years, flat Observe the large effect of modest changes in interest on capital A close up is given below Clarification The last example used a flat yield curve Let us look at an example with short-term rates remaining fixed longer-term rates rising on increased expectation of a general rise in interest rates Investment Implications Assume a 20-year bond with a coupon rate of 6% Purchase for $1016.54 when the lower curve prevails When yield curve rises, the bond is worth only $814.05 This is a massive capital ris