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BUSN380 Week 4 TCO 5 Bond Valuation Notes - Lecture Supplement
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Bond valuation represents a straightforward application of the present value principles presented by Lecture 1.  With respect to these present value principles, generally speaking there are two major bond categories: zero-coupon bonds and coupon bonds.

 

The price (present value) of a zero-coupon bond is determined by discounting the bond’s terminal payout by the bond’s yield to maturity.  For example, the current price of a zero-coupon bond with a face value of $1,000, a yield to maturity of 10%, and a five-year maturity is:

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