HTA 602 Lecture Notes - Lecture 7: Fisher Hypothesis, Sign Convention, Credit Risk

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

Present value of cash flows as rates change: bond value = pv of coupons + pv of par, bond value = pv annuity + pv of lump sum, remember, as interest rates increase the pv"s decrease. So, as interest rates increase, bond prices decrease and vice versa. Valuing a discount bond with annual coupons: consider a bond with a coupon rate of 10% and coupons paid annually. The par value is and the bond has 5 years to maturity. Suppose you are looking at a bond that has a 10% annual coupon and a face value of. There are 20 years to maturity and the yield to maturity is 8%. If ytm = coupon rate, then par value = bond price. Selling at a discount, called a discount bond. If ytm < coupon rate, then par value < bond price. Selling at a premium, called a premium bond: most bonds in canada make coupon payments semiannually.