FMI7e_ch08Bond Valuation and Risk(金融市场好机构—7e, by Jeff Madura)).pdf

Chapter 8 Bond Valuation and Risk Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. 1 Chapter Outline  Bond valuation process  Relationships between coupon rate, required return, and bond price  Explaining bond price movements  Sensitivity of bond prices to interest rate movements  Bond investment strategies used by investors  Return and risk of international bonds 2 Bond Valuation Process  Bonds:  Are debt obligations with long-term maturities issued by government or corporations to obtain long-term funds  Are commonly purchased by financial institutions that wish to invest for long-term periods  The appropriate bond price reflects the present value of the cash flows generated by the bond (i.e., interest payments and repayment of principal): C C C Par PV of bond   (1k )1 (1k )2 (1k )n 3 Computing the Current Price of A Bond A 2-year bond has a par value of $1,000 and a coupon rate of 5 percent. The prevailing annualized yield on other bonds with similar characteristics is 7 percent. What is the appropriate market price of the bond? C C C Par PV of bond   (1 )1 (1 )2 (1 )n k k k 50 1,050