Outline of Session Outline of Session 4
Outline of Session Outline of Session 4
Outline of Session Outline of Session 4
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Bond Valuation<br />
We use the DCF method to value a bond and<br />
get the bond price.<br />
To value a bond, we just discount periodic<br />
interest payments and face value <strong>of</strong> a bond at<br />
the prevailing market interest rate<br />
appropriate for its risk class.<br />
Bond Price =<br />
Int<br />
1<br />
+<br />
2<br />
( 1 + YTM) ( ) ( ) N<br />
Yield−to−Maturity (YTM) is a discount rate<br />
that solves the above equation.<br />
Int<br />
Bond price and its yield is jointly determined.<br />
Last Updated: June 11, 2009 © 2009 Charn Soranakom, Ph.D. <strong>Session</strong> 4 | Slide 4 <strong>of</strong> 19<br />
2<br />
1 + YTM<br />
Int<br />
+ ... +<br />
N<br />
+ Face Value<br />
1 + YTM