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Bond Valuation

Bond Valuation. The life of a bond. Issue Maturity Timeline Cash Flows. Parallel with TVM. PV = ? FV = ? I = ? N = ? PMT = ?. Examples. Effect of interest rates on bond prices. Interest rates from a macro view Trickle down effect

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Bond Valuation

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  1. Bond Valuation

  2. The life of a bond • Issue • Maturity • Timeline • Cash Flows

  3. Parallel with TVM • PV = ? • FV = ? • I = ? • N = ? • PMT = ?

  4. Examples

  5. Effect of interest rates on bond prices • Interest rates from a macro view • Trickle down effect • Most important thing to remember about bond prices and interest rates • ?

  6. Two ways to make money from bonds • First way • Second way • Total return • Can bonds be bought and sold?

  7. How is the required return for a bond determined? • Starting with risk-free rate • What is the risk-free rate? • Tack on additional premiums • Liquidity • Maturity risk • Default risk • Inflation

  8. Interest rate risk (possibly cover) • What is interest rate risk? • How are different bonds affected by interest rate risk?

  9. Reinvestment rate risk (possibly cover) • What is reinvestment rate risk? • How are different bonds affected by reinvestment rate risk?

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