bond valuation

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Issue:

Business

 

Written by:

Esther D

 

Date added:

January 14, 2011

 

Level:

University

 

Grade:

A

 

No of pages / words:

2 / 525

 

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1397 times

 

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Essay content:

However, if there is a chance that the promised payments won't be made in full, the promised payment is the maximum possible amount (no one pays more than promised) and the expected payment must be less than the promised payment. 2. Here is the basic bond valuation equation: Bond Value = C/(1+k)1 + C/(1+k)2 + ??+ C/(1+k)n + ParValue/(1+k)n Where: C is the coupon payment n is the number of years to maturity k is the appropriate annual discount rate Note: Most bonds make semi-annual payments and this requires some changes to the above expression...
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The payments must be halved, the discount rate must be halved, and the half-year intervals must be included. For a bond with semi-annual payments, Bond Value = .5C/(1+k/2)1 + .5C/(1+k/2)2 + ??+ .5C/(1+k)2n + ?. + ParValue/(1+k/2)2n 3. The above equation is very easy to use within Excel. Just put the coupon payments and principal payments in a string of consecutive cells...
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