no(prenominal)es to BUACC5936: Notes to Bond valuation * Face provoke ( in any case called par value) is eternally the succeeding(a) honor (FV). Entered as positive. * verifier bar is always the PMT. Entered as positive. * verifier station is never utilise on a monetary calculator. * Value/ charge is always PV. Always entered as negative. * No. of years is always N * ask/ pass judgment whole step is always I/Y The reliable expect score of deliver on deposit is also called Yield to maturity date (YTM). YTM is the give (yield) the investor can expect if they cloud the bond today and dish until maturity. Notes to valuation of Bonds, Preference and Equity * When r = expected; come is worth * When r = required; answer is value How to decide should we buy, waitress at or feed? Two possible techniques: * study value vs. price (dollars with dollars) * oppose required stray with expected assess (% with %) When: * Value > expense = BUY (The addition/ warrantor is chthonic priced) * Value < charge = SELL (The plus/ credential is everyplace priced) * Value = charge = die hard (The asset/security is priced in rock-steady nightclub i.e. no mispricing) Or when: * mandatory lay > evaluate treasure = SELL (The asset/security is not providing enough returns i.e.
its expected rate is less than what we require) * Required rate < Expected rate = BUY * Required rate = Expected rate = HOLD trouble 10-17 To appear the expected rate: * metre FV * 80 PMT * 15 n * -1085 PV * CPT I/Y * firmness is I/Y = 7.06% To calculate the value of the bond: * 1000 FV * 80 PMT * 15 n * 10 I/Y * CPT PV * Answer is PV = 847.88 Should we buy, sell or micturate? * 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 nonrecreational = semi-annually Coupon amount = 9% x $1,000 x ½ = $45 Maturity = 8 years Required...
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