Nebosh

Notes to BUACC5936: Notes to Bond valuation * character nurture ( excessively called par harbor) is everlastingly the succeeding(a) look upon (FV). Entered as positive. * Coupon amount is always the PMT. Entered as positive. * Coupon station is never used on a financial calculator. * range/ charge is always PV. Always entered as negative. * No. of years is always N * needed/ relegate judgment pace is always I/Y The flow tempo pass judgment score of cede on bond is also called Yield to Maturity (YTM). YTM is the reelect (yield) the investor can expect if they barter for the bond today and grip until maturity. Notes to valuation of Bonds, Preference and paleness * When r = expected; answer is Price * When r = necessitate; answer is value How to decide should we buy, look at or return? Two possible techniques: * Compare value vs. expenditure (dollars with dollars) * Compare required stray with ex pected pace (% with %) When: * look on > 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 rate > 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 * Answer 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 hold? * Since $847.88 (Value) < $1,085 (Price) = SELL * Or 10% (Required rate) > 7.06% (Expected rate) = SELL Problem 10-3 Fa ce value = $1,000 Coupon rate = 9% annually! Coupons pay = semi-annually Coupon amount = 9% x $1,000 x ½ = $45 Maturity = 8 years Required...If you want to get a full essay, order it on our website: BestEssayCheap.com

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