Interest Rates and Bond Valuation利率和债券的估值.pptVIP

Summer 2008 Yunling Chen Interest Rates and Bond Valuation Chapter 6 Summer 2008 Roadmap Bond Valuation Terminology Basic valuation Relationship Between The Bond Value YTM Why the bond price changes? Interest Risk Default Risk Bond Features and Types Inflation, Nominal and Real Rates Term Structure of Interest Rates (Yield Curve) Determinates of bond yield Bonds A bond is a debt instrument requiring the issuer to repay to the investors the amount borrowed plus interest over a specified period of time. Involved Parties: Issuers / Debtors / Borrowers : The parties (government or corporations) that borrow money and issue debt securities Investors / Creditors / Lenders / Bondholders : The parties (person, government or corporations that lend money to issuers. (they buy the debt securities). Other parties: Underwriters: Investment banking firms that act as agents to distribute bonds to investors. They will charge a fee for the service. Bond – Face value Face Value (Par Value) - F The total principal amount that will be repaid at the end of the loan. It is often different from market value Bond’s market value is the fair value a bond can be bought/sold in the market. In FINA 110, we assume bond’s market value is the same as its market price. Bond - Coupons Stated annual interest payment make on a bond. It is determined upon issuance. Normally, it is expressed as a percentage of par value. Coupon Payment = Coupon Rate (c) x Par Value. Coupon rate is NOT the discount rate for discounting!!! Instead, it is only the interest rate that issuer promises to pay periodically. If coupon rate is zero, bonds are called Zero-Coupon Bonds (Zeros) Current Yield = the (annual) coupon / the market price Bond - Maturity The number of years left until the face value is paid. The maturity date of a bond refers to the date that the debt will cease to exist. A calendar year can correspond to many compounding periods. Example Company A has 8% coupon bonds on the market with 9 years