Notice that here we have entered both a future value of $1,000, representing the bond's face value, and a payment of 10 percent of $1,000, or $100, per year, representing the bond's annual coupon. Also notice that we have a negative sign on the bond's price, which we have entered as the present value.

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

210 PART THREE Valuation of Future Cash Flows

For the second bond, we now know that the relevant yield is 11 percent. It has a 12 percent coupon and 12 years to maturity, so what's the price? To answer, we just enter the relevant values and solve for the present value of the bond's cash flows:


0 0

Post a comment