2. Bond valuation The proces value of the cash flows that the security will generate in the future s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic pay, and a bondholder's required return Remember, a bond's coupon rate partially determines the interest-based return that a bond reflects the return that a bondholder to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return, the bond's par value, and its intrinsic value. These relationships can be summarized as follows: . When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par. its par . When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value wil value, and the bond will trade at a premium . When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par value, and the bond will trade at
2. Bond valuation The proces value of the cash flows that the security will generate in the future s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic pay, and a bondholder's required return Remember, a bond's coupon rate partially determines the interest-based return that a bond reflects the return that a bondholder to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return, the bond's par value, and its intrinsic value. These relationships can be summarized as follows: . When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par. its par . When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value wil value, and the bond will trade at a premium . When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par value, and the bond will trade at
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:2. Bond valuation
The proces
value of the cash flows that the security will generate in the future
s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present
There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's
resulting intrinsic value.
value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return
Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic
pay, and a bondholder's required return
Remember, a bond's coupon rate partially determines the interest-based return that a bond
reflects the return that a bondholder
to receive from a given investment.
The mathematics
of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return, the bond's par
value, and its intrinsic value. These relationships can be summarized as follows:
. When the bond's coupon
rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and
the bond will trade at par.
its par
. When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value wil
value, and the bond will trade at a premium
. When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par
value, and the bond will trade at
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