Bonds and Their Valuation After reading this chapter‚ students should be able to: • List the four main classifications of bonds and differentiate among them. • Identify the key characteristics common to all bonds. • Calculate the value of a bond with annual or semiannual interest payments. • Explain why the market value of an outstanding fixed-rate bond will fall when interest rates rise on new bonds of equal risk‚ or vice versa. • Calculate the current yield
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1)pk acquired a 25% interest in Trent Co. on January 1‚ 2010‚ for $500‚000. At that time‚ Trent had 1‚000‚000 shares of its $1 par common stock issued and outstanding. During 2010‚ Trent paid cash dividends of $160‚000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share. Trent’s net income for 2010 was $360‚000. What is the balance in Agee’s investment account at the end of 2010 Cost $500‚000 Share of net income (.25 × $360‚000) 90‚000 Share
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(Valuation of Bonds and Shares) 1. Verbrugge Company has a level-coupon bond outstanding that pays coupon interest of $120 per year and has 10 years to maturity. The face value of the bond is $1‚000. If the yield for similar bonds is currently 14%‚ what is the bond ’s current market value? [Ans: $ 895.68] 2. For the Verbrugge Company bond described in Problem 1‚ find the bond ’s value if the yield for similar bonds decreases to 12%. [Ans: $ 1‚000] 3. For the Verbrugge Company bond described
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What are Yield to Maturity (YTM) and Yield to Call (YTC)? By calculating the present and future value of bonds‚ managers can make sound decisions about their potential strengths and weaknesses as investments. Answer the following questions in this week’s Discussion 2 thread: 1. What terms (or inputs) are needed to calculate yield to maturity (YTM)? How does this compare to calculating yield to call (YTC)? To calculate the YTM you will need to use Annual Interest‚ Par value‚ Market Price
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How to Calculate Preferred Dividends Preferred stock (or preference shares) is a special class of stock that pays a fixed dividend set at the time of issuance. Also‚ preferred dividends must be paid before common stock dividends. To calculate the dividends for preferred stocks‚ you need to multiply the par value of the shares by the dividend percentage. Example 1: If the dividend percentage is 8 percent and the preferred stock was issued at $20 per share‚ then the annual dividend is: 8% * $20 =
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Using present value to value bonds A bond‚ from the perspective of the person issuing the bond is a form of long term debt. In the hands of the person who has acquired the bond it is an asset. The agency issuing the bond agrees to pay a fixed sum of money to the holder of the bond for a period of years and then‚ at the end of that period‚ to pay back the face value of the bond. Bonds can be issued by a variety of agencies/companies: 1. Municipal bonds: issued by cities‚ states and
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perpetual bond is currently selling for RS. 95/-. The coupon rate of interest is 13.5%. The approximate discount rate is 15%. The value of the bond and the YTM is: (a) Rs. 90/- and 14.2% Value is (13.5*15%=90) and YTM is ((13.5/95)*100=14.21%) (b) Rs. 100/- and 13.5% (c) Rs. 90 and 15% (d) Rs. 90/- and 13.5% 902. In 2001‚ Meridian Ltd. has issued bonds of Rs. 10‚000/-each due in 2011 with a 14% per annum coupon rate payable at the end of each year during the life of the bond. If the required
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NAME: MASSAWE BARAKA‚ REG. NO: 2010-04-03894. 12 FINANCE 202 INDIVIDUAL ASSIGNMENT UDBS Consider a 10 year bond that has a face value shs 1000‚ a coupon rate of 6% and pays interest once a year. (a)Suppose person A bought this bond at par when it was initially issued and sold it 1 year later to person B for shs 1024.What is B’s total return? Soln Total return =[ Interest paid +(selling price – buying price)]/buying price Given; Annual interest paid = coupon rate x par value‚ coupon
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CONTENTS Introduction of bonds……………………………………………..01 Characteristics of Bonds…………………………………………01 Types of Bonds…………………………………………………… 06 Bonds Market……………………………………………………… 08 Introduction of Pakistan bond market……………...................08 How Bonds Trade……………………………………………….….09 Bond Price Variations……………………………………………..09 Bond valuation…………………………………………..................09 Types of bonds trade in Pakistan……………………………….10 Government Debt Securities……………………………………..10 Characteristics of MTBs and PIBs………………………………12
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A stock market is a market for the trading of company stock‚ and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. Contents [hide] [ The term ’the stock market ’ is a concept for the mechanism that enables the trading of company stocks (collective shares)‚ other securities‚ and derivatives. Bonds are still traditionally traded in an informal‚ over-the-counter market known as the bond market. Commodities are traded in commodities
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