HTA 602 Lecture 7: Chapter 7

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

Document Summary

Bond value = present value of the cash flows from a bond (present value of coupons + present value of face amount) = pv annuity + pv of lump sum. Current yield= (coupon rate * face value ) / (quote rate * face value) Time to maturity: the longer the time to maturity, the greater price sensitivity to rate risk with decreasing rate. Coupon rate: the lower coupon rate, the greater price sensitivity to interest rate risk reinvestment rate risk. Uncertainty concerning interest rates which cash flows can be reinvested. Short term bonds have more reinvestment rate risk than long term bonds. 7. 2 more on bond features: person/ firm making loan: creditor/ lender; corporation borrowing money: debtor/ borrower. Bondholders have legal recourse if interest/ principal payments are missed. Excess debt can lead to financial distress & bankruptcy interest is considered a cost of doing business & is tax deductible: equity. Common shareholders vote for bod & other issues.