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Bond valuation

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This document provides an overview of key concepts related to bond valuation including: 1) Bond features such as par value, coupon rate, and maturity date affect bond prices and how they are impacted by changes in interest rates. 2) Bond ratings indicate the risk of default and impact required returns, with higher-rated bonds having lower yields. 3) Inflation and expectations of future inflation are built into nominal interest rates through the Fisher effect.

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PrivateBanker.ro Interest Rates and Bond Valuation
Key Concepts and Skills ,[object Object],[object Object],[object Object],[object Object],[object Object]
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Definitions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Present Value of Cash Flows as Rates Change ,[object Object],[object Object],[object Object],[object Object]
Valuing a Discount Bond with Annual Coupons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Valuing a Premium Bond with Annual Coupons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Graphical Relationship Between Price and Yield-to-maturity Bond Price Yield-to-maturity
Bond Prices: Relationship Between Coupon and Yield ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Bond-Pricing Equation
Example ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Coupon rate= 14%, semiannual coupons, YTM=16% Maturity= 7 years Par value=1000$
Interest Rate Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exemple
Computing Yield-to-maturity ,[object Object],[object Object],[object Object]
YTM with Annual Coupons ,[object Object],[object Object],[object Object],[object Object]
YTM with Semiannual Coupons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Current Yield vs. Yield to Maturity ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Pricing Theorems ,[object Object],[object Object],[object Object]
Bond Prices with a Spreadsheet ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Differences Between Debt and Equity ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Bond Indenture ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Classifications ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Characteristics and Required Returns ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Ratings – Investment Quality ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Ratings - Speculative ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Zero-Coupon Bonds ,[object Object],[object Object],[object Object],[object Object],[object Object]
Floating Rate Bonds ,[object Object],[object Object],[object Object],[object Object],[object Object]
Other Bond Types ,[object Object],[object Object],[object Object],[object Object],[object Object]
Other Bond Types ,[object Object],[object Object]
Other Bond Types ,[object Object],[object Object]
Other Bond Types ,[object Object],[object Object],[object Object],[object Object]
Bond Markets ,[object Object],[object Object],[object Object],[object Object]
Inflation and Interest Rates ,[object Object],[object Object],[object Object]
The Fisher Effect ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Example: Fisher Effect ,[object Object],[object Object],[object Object],[object Object]
Term Structure of Interest Rates ,[object Object],[object Object],[object Object],[object Object],[object Object]
Upward-Sloping Yield Curve
Downward-Sloping Yield Curve
Factors Affecting Required Return ,[object Object],[object Object],[object Object],[object Object]
Recapitulations questions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Bond valuation