Why Do We Need For Your Financial Calculator?

1284 Words Feb 10th, 2016 6 Pages
Female Speaker: As we begin looking at how you value bonds, you might want to have your financial calculator out so you can practice some of the calculations that I am making in these slides. You might want to pause and see if you can replicate those calculations as we go along. We can use a timeline to lay out the features of bonds, you probably won’t need to do this as solve bond problems, but it might be helpful to look at one as we start out.

Just like any debt instrument, a bond has a specified maturity date, and a value at the maturity, that we usually call the face values, although, it certainly is the future value. Like a debt instrument, it’s going to make interest payments periodically throughout its lifetime. We are calling that the value of any investment and it is the present value of its future cash flows.

We will use time values of money, to present value the interim interest payments and maturity value payoff, but present value those back to time period zero, today to determine what its price would be. Let’s consider the valuables that are associated with bonds and you will see that they are almost exactly the same as those that we use with time value of money problems earlier.

So N is still the number of periods, the number if interest paying periods and I is the market rate of interest, so that is a little bit different, that is the market rate, the prevailing rate of interest for bonds of this type in the marketplace. Present value is price,…

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