LEARNING GOALS

262

INTEREST RATES AND

BOND VALUATION

CHAPTER

Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU

Accounting:You need to understand interest rates and the
various types of bonds in order to be able to account properly
for amortization of bond premiums and discounts and for bond
purchases and retirements.

Information systems:You need to understand the data that you
will need to track in bond amortization schedules and bond
valuation.

Management:You need to understand the behavior of interest
rates and how they will affect the types of funds the firm can
raise and the timing and cost of bond issues and retirements.

Marketing:You need to understand how the interest rate level

and the firm’s ability to issue bonds may affect the availability

of financing for marketing research projects and new-product

development.

Operations:You need to understand how the interest rate level

may affect the firm’s ability to raise funds to maintain and

increase the firm’s production capacity.

Apply the basic valuation model to bonds and

describe the impact of required return and time to

maturity on bond values.

Explain yield to maturity (YTM), its calculation,

and the procedure used to value bonds that pay

interest semiannually.

LG6

Describe interest rate fundamentals, the term LG5

structure of interest rates, and risk premiums.

Review the legal aspects of bond financing and

bond cost.

Discuss the general features, quotations, ratings,

popular types, and international issues of corpo-

rate bonds.

Understand the key inputs and basic model used

in the valuation process.

LG4

LG3

LG2

LG1

6