Fundamentals of Financial Management (Concise 6th Edition)

200 Part 3 Financial Assets Whereas callable bonds give the issuer the right to retire the debt prior to ma- turity, putable bon ...

Chapter 7 Bonds and Their Valuation 201 We can now redraw the time line to show the numerical values for all variables except th ...

202 Part 3 Financial Assets investor, it is shown with a negative sign. The calculator is programmed to solve Equation 7-1: It! ...

Chapter 7 Bonds and Their Valuation 203 On the other hand, bond prices rise when market interest rates fall. For exam- ple, if t ...

204 Part 3 Financial Assets publications. To! nd the YTM, all you need to do is solve Equation 7-1 for rd as follows: VB! ______ ...

Chapter 7 Bonds and Their Valuation 205 To illustrate, suppose Allied’s bonds had a provision that permitted the com- pany, if i ...

206 Part 3 Financial Assets 7-5 CHANGES IN BOND VALUES OVER TIME When a coupon bond is issued, the coupon is generally set at a ...

Calculation of Current Yields, Capital Gains Yields, and Total Returns for 7%, 10%, and 13% Coupon Bonds When the Market Rate Re ...

208 Part 3 Financial Assets equal to the current yield plus the capital gains yield. In the absence of default risk and assuming ...

Chapter 7 Bonds and Their Valuation 209 7-6 BONDS WITH SEMIANNUAL COUPONS Although some bonds pay interest annually, the vast ma ...

210 Part 3 Financial Assets calculated in Section 7-3. This higher value occurs because each interest payment is received somewh ...

Chapter 7 Bonds and Their Valuation 211 Interest rate risk is higher on bonds that have long maturities than on bonds that will ...

212 Part 3 Financial Assets one with the longer maturity is typically exposed to more risk from a rise in inter- est rates.^15 T ...

Chapter 7 Bonds and Their Valuation 213 7-7b Reinvestment Rate Risk As we saw in the preceding section, an increase in interest ...

214 Part 3 Financial Assets One way to manage both interest rate and reinvestment rate risk is to buy a zero coupon Treasury bon ...

Chapter 7 Bonds and Their Valuation 215 7-8a Various Types of Corporate Bonds Default risk is in" uenced by the! nancial strengt ...

216 Part 3 Financial Assets Investor’s Service. Moody’s and S&P’s rating designations are shown in Table 7-2.^18 The triple- ...

Chapter 7 Bonds and Their Valuation 217 We see that bond ratings are determined by a great many factors, some quantita- tive and ...

218 Part 3 Financial Assets Figure 7-5 that the risk-free rate, or vertical axis intercept, was lower in January 2008 than it wa ...

Chapter 7 Bonds and Their Valuation 219 Over the long run, rating agencies have done a reasonably good job of measur- ing the av ...