FINE 441 Lecture 8: 6fixedincome
15 Dec 2015
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Document Summary
Problems from chapter 12 : 3,6,8 to 11,20 to 22,30,32. The bond pricing equation and a sample calculation are presented in the text. The concept of yield to maturity can be related to prior work the students have done by equating it to the irr. The yield to maturity is simply the discount rate that equates the present value of the cash flows from the bond to its current price. T h e m cg raw -h ill c om pan ies, inc. , 1999. The graph of the relationship between bond prices and yields is presented below: The yield to maturity is the interest rate that makes the present value of the bond"s payments equal to its price. We present an example of calculation of semiannual yield to maturity. C o u p o n r a t e = 7 % r. P r i c e = $ 9 5 0.
