BBG 101 Lecture Notes - Lecture 9: Bond Valuation, Zero-Coupon Bond, Market Price

• School: Tunxis Community College
• Department: Business – General
• Course: BBG 101
• Professor: Boccaccio

Document Summary

These are discount securities because the price received is less than the face value. The difference between the face value and present value represents the interest amount. Pv = fv / (1 + rt) Fv = future value, or face value. R = interest rate t = time to maturity. Valuing a bond requires: the face value the coupon payment the market interest rate the number of coupon payments to maturity. Prices and yields move in opposite directions. When the bond price is less than the face value, the bond is referred to as a discount bond. the annual coupon is the coupon rate multiplied by the face value. If the market rate is less than the coupon rathe then the bond trades at a premium. Occurs when the market rate is greater than the coupon rate. Par bond = market price = face value. A bond"s price, coupon rate and maturity date are easily observed.