Chap014Bond_Prices_and_Yields金融工程英文(王小麓).pptVIP

McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-* McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-* Bond Prices and Yields Chapter 14 Face or par value Coupon rate Zero coupon bond Compounding and payments Accrued Interest Indenture Bond Characteristics Different Issuers of Bonds U.S. Treasury Notes and Bonds Corporations Municipalities International Governments and Corporations Innovative Bonds Indexed Bonds Floaters and Reverse Floaters Secured or unsecured Call provision Convertible provision Put provision (putable bonds) Floating rate bonds Sinking funds Provisions of Bonds PB = Price of the bond Ct = interest or coupon payments T = number of periods to maturity y = semi-annual discount rate or the semi-annual yield to maturity Bond Pricing Ct = 40 (SA) P = 1000 T = 20 periods r = 3% (SA) Solving for Price: 10-yr, 8% Coupon Bond, Face = $1,000 Prices and Yields (required rates of return) have an inverse relationship When yields get very high the value of the bond will be very low. When yields approach zero, the value of the bond approaches the sum of the cash flows. Bond Prices and Yields Price Yield Prices and Coupon Rates Yield to Maturity Interest rate that makes the present value of the bond’s payments equal to its price. Solve the bond formula for r Yield to Maturity Example 10 yr Maturity Coupon Rate = 7% Price = $950 Solve for r = semiannual rate r = 3.8635% Yield Measures Bond Equivalent Yield 7.72% = 3.86% x 2 Effective Annual Yield (1.0386)2 - 1 = 7.88% Current Yield Annual Interest / Market Price $70 / $950 = 7.37 % Realized Yield versus YTM Reinvestment Assumptions Holding Period Return Changes in rates affects returns Reinvestment of coupon payments Change in price of the bond Holding-Period Return: Single Period HPR = [ I + ( P0 - P1 )] / P0 where I = interest payment P1 = price in one period P0 = purchase price Holding-Period Exa