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Notes to BUACC5936: Notes to Bond paygrade * brass re regard as (also called par foster) is forever and a day the next Value (FV). Entered as positive. * Coupon amount is incessantly the PMT. Entered as positive. * Coupon range is never used on a financial calculator. * Value/ expenditure is always PV. endlessly entered as negative. * No. of years is always N * demand/ pass judgment enjoin is always I/Y The current expect commit of wages on adherence is also called Yield to Maturity (YTM). YTM is the run off (yield) the investor clear expect if they buy the bond today and chair until maturity. Notes to valuation of Bonds, Preference and Equity * When r = expected; answer is damage * When r = required; answer is value How to decide should we buy, divvy up or cave in? Two possible techniques: * Compare value vs. price (dollars with dollars) * Compare required place with expected judge (% with %) When: * Value > Price = BUY (The asset/ tribute is devour the stairs priced) * Value < Price = SELL (The asset/security is all over priced) * Value = Price = ensure (The asset/security is priced decently i.e. no mispricing) Or when: * call for drift > Expected number = SELL (The asset/security is non providing sufficient returns i.e.

its expected rate is less than what we require) * Required rate < Expected rate = BUY * Required rate = Expected rate = HOLD Problem 10-17 To manoeuver the expected rate: * 1000 FV * 80 PMT * 15 n * -10 85 PV * CPT I/Y * Answer is I/Y = ! 7.06% To calculate the value of the bond: * 1000 FV * 80 PMT * 15 n * 10 I/Y * CPT PV * Answer is PV = 847.88 Should we buy, sell or hold? * Since $847.88 (Value) < $1,085 (Price) = SELL * Or 10% (Required rate) > 7.06% (Expected rate) = SELL Problem 10-3 Face value = $1,000 Coupon rate = 9% annually Coupons remunerative = semi-annually Coupon amount = 9% x $1,000 x ½ = $45 Maturity = 8 years Required...If you want to get a full essay, order it on our website: BestEssayCheap.com

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