Notes On Bonds Valuation And Bond Rates

1107 Words Sep 29th, 2014 5 Pages
Bonds Valuation

Bond
Company/

Rating
Face Value (FV)
Coupon Rate
Annual Payment (PMT)
Time-to Maturity (NPER)
Yield-to-Maturity (RATE)
Market Value (Quote)
Discount, Premium, Par
A-Rated
General Electric Capital/AA
$1,000
4.00%
$ 40.00
15
3.897%
$1,011.70
Premium
B-Rated
Hercules Inc./BB
$1,000
6.50%
$ 65.00
15
5.944%
$1,055.00
Premium
C-Rated
Albersons Inc./CCC
$1,000
8.00%
$ 80.00
17
8.053%
$ 995.00
Discount

Explain the relationship observed between ratings and yield to maturity. So By looking at Coupon Rate & YTM, one can predict of Bond is traded at Par, Discount or Premium
Explain why the coupon rate and the yield to maturity determine why the bonds would trade at a discount, premium, or par. It’s necessary to determine the yield to maturity and coupon rate because the the discount rate for a coupon bond is its yield to maturity, which equates the present value of the future cash flows of bond relative to its price. Generally, a bond trade at a discount because its coupon rate comparatively lesser than as compared to it yield to maturity. It trade at a premium because its coupon rate increases its yield to maturity. A bond trade at par because coupon rate equals its yield to maturity (J. Van Horne &, John M Wachowicz, 2008).
Based on the material you learn in this Phase, what would you expect to happen to the yield to maturity and market value of the bonds if the time to maturity was increased or decreased by 5 years? If Time to maturity increases by 5 Yrs,…

More about Notes On Bonds Valuation And Bond Rates

Open Document