# CHAPTER 9 BONDS AND THEIR VALUATION

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CHAPTER 9 BONDS AND THEIR VALUATION

## 1. BOND YIELDS

### 1.1. Yield to Maturity

1.1.1. the rate of return earned on a bond if it is held to maturity

### 1.2. Yield to Call

1.2.1. the rate of return earned on a bond when it is called before its maturity date.

1.2.2.1. In general, if a bond sells at a premium, then

1.2.2.1.1. 1) coupon > rd

1.2.2.1.2. 2) a call is more likely

1.2.3. -> Sells at Discount

1.2.4. Expected to Earned

1.2.4.2. YTM on par and discount bonds

## 2. SEMIANNUAL BOND

### 2.1. STEPS :)

2.1.1. 1) Multiply years by 2 : number of periods = 2n.

2.1.2. 2) Divide nominal rate by 2 : periodic rate (I/YR) = rd / 2.

2.1.3. 3) Divide annual coupon by 2 : PMT = ann cpn / 2.

### 2.2. Annual VS Semiannual

2.2.1. (Semiannual effective rate) > (the annual bond’s effective rate)

2.2.1.1. so you would prefer the semiannual bond.

## 6. BOND VALUATION

### 6.1. (Par Bond)

6.1.1. rd = coupon rate, fixed-rate bond sells at par

### 6.2. (Discount Bond)

6.2.1. rd > coupon rate, fixed-rate bond sells below par