Bonds And Their Valuation

Chapter 6 Bonds and their Valuation OVERVIEW This chapter takes a discussion of the key characteristics of hold fasts, and then(prenominal) uses time foster of money concepts to determine bond encourages. Bonds atomic number 18 one of the roughly important types of securities to investors, and atomic number 18 a major(ip) source of finance for corporations and governments. The treasure of any monetary summation is the present value of the currency flows expected from that asset. on that pointfore, once the cash flows have been estimated, and a discount rate determined, the value of the financial asset fanny be calculated. A bond is treasured as the present value of the stream of raise payments (an annuity) gain the present value of the equation value, which is the principal amount for the bond, and is veritable by the investor on the bonds maturity date. Depending on the relationship between the current following rate and the bonds coupon rate, a b ond can shop at its par value, at a discount, or at a premium. The enumerate rate of return on a bond is comprised of ii components: interest yield and capital gains yield. The bond valuation concepts developed earlier in the chapter are utilize to illustrate interest rate and reinvestment rate risk. In addition, inconsiderateness risk, various types of integrated bonds, bond ratings, and bond markets are discussed.

lineation A bond is a long-term contract chthonic which a borrower agrees to make payments of interest and principal, on specific dates, to the holders of the bond. There are four of import types of bonds: Treasury, bodie! d, municipal, and foreign. Each type differs with respect to expected return and breaker point of risk. ? Treasury bonds, sometimes referred to as government bonds, are issued by the Federal government and are not exposed to nonpayment risk. ? Corporate bonds are issued by corporations and are exposed to default risk. Different corporate bonds have different levels of default risk, depending on the issuing caller-outs characteristics and on the terms of the...If you pauperization to get a full essay, order it on our website: OrderCustomPaper.com

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