Bonds And Bond Valuation

When a corporation (or government) wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities that are generi-cally called bonds. In this section, we describe the various features of corporate bonds

Ross et al.: Fundamentals I III. Valuation of Future I 7. Interest Rates and Bond I I © The McGraw-Hill of Corporate Finance, Sixth Cash Flows Valuation Companies, 2002

Edition, Alternate Edition

202 PART THREE Valuation of Future Cash Flows and some of the terminology associated with bonds. We then discuss the cash flows associated with a bond and how bonds can be valued using our discounted cash flow procedure.

coupon

The stated interest payment made on a bond.

face value

The principal amount of a bond that is repaid at the end of the term. Also, par value.

coupon rate

The annual coupon divided by the face value of a bond.

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