Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate EditionIII. Valuation of Future
Cash Flows- Interest Rates and Bond
Valuation
© The McGraw−Hill^253
Companies, 2002BOND MARKETS
Bonds are bought and sold in enormous quantities every day. You may be surprised to
learn that the trading volume in bonds on a typical day is many, many times larger than
the trading volume in stocks (by trading volume, we simply mean the amount of money
that changes hands). Here is a finance trivia question: What is the largest securities mar-
ket in the world? Most people would guess the New York Stock Exchange. In fact, the
largest securities market in the world in terms of trading volume is the U.S. Treasury
market.
CHAPTER 7 Interest Rates and Bond Valuation 2237.5
Bond quotes have become more availablewith the rise of the
Web. One site where you can find current bond prices is http://www.
bondsonline.com. Following the “Bond Search” link, the “Corporate” link,
and entering “Worldcom,” we found the following quotes:Most of the information is self-explanatory. The first two columns give the bond
ratings assigned by Moody’s and Standard & Poor’s. The Qty column lists the number
of bonds for sale, and the Min column is the minimum number of bonds that can be
purchased. Next we have the Issues. Clicking on one of these links provides more in-
formation concerning the bond. Notice in the Maturity column that the bond matur-
ing on January 15, 2006, has a “C” following the date, indicating that this particular
bond is callable. The yield column shows the yield to maturity based on the purchase
price, which is listed in the last column. The LY column shows the yield investors will
receive if they buy this bond at the listed purchase price and the company calls the
bond on the next call date. When you search for bond quotes on the Web, remem-
ber that the bond market is not very liquid, so you may be unable to find bonds listed
for a particular company on a particular day.Work the Web