Nebosh

Notes to BUACC5936: Notes to Bond valuation * construction nurture ( as well called par comfort) is ever so the succeeding(a) protect (FV). Entered as positive. * Coupon amount is always the PMT. Entered as positive. * Coupon station is never used on a financial calculator. * set/ charge is always PV. Always entered as negative. * No. of years is always N * infallible/ take to the woods judgment pace is always I/Y The on-going expect score of cede on bond is also called Yield to Maturity (YTM). YTM is the reelect (yield) the investor can expect if they deal the bond today and grip until maturity. Notes to valuation of Bonds, Preference and justice * When r = expected; answer is Price * When r = demand; answer is value How to decide should we buy, look at or asseverate? Two possible techniques: * Compare value vs. scathe (dollars with dollars) * Compare required stray with expected swan (% with % ) When: * think of > Price = BUY (The asset/security is chthonic priced) * Value < Price = SELL (The asset/security is everyplace priced) * Value = Price = die hard (The asset/security is priced in good order i.e. no mispricing) Or when: * Required assess > Expected rate = SELL (The asset/security is not providing sufficient returns i.e.

its expected rate is less than what we require) * Required rate < Expected rate = BUY * Required rate = Expected rate = HOLD Problem 10-17 To seem the expected rate: * 1000 FV * 80 PMT * 15 n * -1085 PV * CPT I/Y * A nswer is I/Y = 7.06% To calculate the val! ue of the bond: * 1000 FV * 80 PMT * 15 n * 10 I/Y * CPT PV * Answer is PV = 847.88 Should we buy, sell or hold? * Since $847.88 (Value) < $1,085 (Price) = SELL * Or 10% (Required rate) > 7.06% (Expected rate) = SELL Problem 10-3 Face value = $1,000 Coupon rate = 9% annually Coupons pay = semi-annually Coupon amount = 9% x $1,000 x ½ = $45 Maturity = 8 years Required...

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