金融英语第十单元.ppt

Chapter 10,Bond Basics,WHAT IS A BOND?,A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. Issuer Coupon rate（interest rate） Face value/ par value (principal) Maturity Price,Classification of bonds,Bonds are often classified according to the type of issuer. treasury bonds agency bonds municipal bonds corporate bonds,Table 1 Bond Ratings by Moodys, Standard and Poors, and Fitch,Junk Bonds: Everything You Need To Know,Fluctuations in Bond Prices -Different in Coupons and Equal Maturity Dates,Words and Expressions:,face value par value coupon maturity risk-free assets risk/return tradeoff credit rating blue-chip firms,junk bond yield to maturity liquidity risk call risk government bonds municipal bonds corporate bonds,Future Value,Future Value is the value on some future date of an investment made today.,Future Value,$100 + $100(0.05) = $105 PV + Interest = FV PV + PV*i = FV PV = Present Value FV = Future Value i = interest rate (as a percentage),Future Value,Future Value in one year. FV = PV*(1+i),Future Value,Future Value in two years 100(1+0.05)(1+0.05) =$110.25,FV at the end of one year,Future Value,Compound interest: interest on the interest General Formula Future value of an investment of PV in n years at interest rate i (measured as a decimal, or 5% = 0.05) FVn = PV*(1+i)n,Future Value,Computing Future Value at 5% Annual Interest,Present Value,A dollar paid to you one year from now is less valuable than a dollar paid to you today We need to figure out how much a payment promised in the future is worth today. Say you agree to make a &225 loan, and the borrower offers to repay you either $100 a year for 3 years or $125 a year for 2 years. Which offer should you take?,Present Value,Present Value (PV) is the value today (in the present) of a payment that is promised to be made in the future. OR Present Value is the amount that must be invested today in order to realize a specific amount on a given future date.,Present Value,Present Value of an amount received in one year. Solving the Future Value Equation FV = PV*(1+i),Present Value,Example: $100 received in one year, i=5% PV=$100/(1+.05) = $95.24 Note: FV = PV*(1+i) = $95.24*(1.05) = $100,Present Value,Present Value of $100 received n years in the future:,Present Value,Example Present Value of $100 received in 30 months and an annual interest rate of 8%. PV = $100 / (1.08)2.5 = $82.50 Note: FV =$82.50 * (1.08)2.5 = $100,Present Value,Important Properties of Present Value Present Value is higher: 1. The higher the future value (FV) of the payment. 2. The shorter the time period until payment. (n) 3. The lower the interest rate. (i),Coupon bond,A coupon bond pays the owner a fixed interest payment( coupon payment) every year until the maturity date, when a specified final amount (face value or par value) is repaid. Three pieces of information: -the issuer of the bond -The maturity date -Coupon rate: as a percentage of the face value Treasury bonds and notes; corporate bonds,Coupon bond,Discount bond,A discount bond( also called a zero-coupon bond) is bought at a price below its face value( at a discount), and the face value is repaid at the maturity date. Treasury bills; savings bonds; long-term zero-coupon bonds,Discount bond,Yield to Maturity,The interest rate that equates the present value of cash flow payments received from an investment with its value today.,Coupon BondYield to Maturity,When the coupon bond is priced at its face value, the yield to maturity equals the coupon ra