FIN-515- Managerial Finance Week 3_Bond Valuation _Discussion_Question_1_Answer

Apr 24th, 2015
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FIN-515- Managerial Finance Week 3_Bond Valuation _Discussion_Question_1_Answer

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Bond Valuation (graded) Discuss the variables for bond valuation. Which are fixed by contract and which vary by market fundamentals?How is the value of a typical corporate bond determined? Which formulas are used to determine the value?Current Yield: The current yield is calculated with a corporate bond calculator to assess the income that a bond would generate for a particular year. This is calculated by dividing the annual interest payment by the bonds current price. So, if the coupon rate of the bond is $50 and the current price of the bond is $1000, then the current yield will be 5%.Retrieved from http://www.economywatch.com/bonds/corporate-bond-calculator.html There are three ways to arrive at bond value.Financial calculators are quick for simple transactions.Excel can be a powerful tool to quickly calculate more complex transactions or to compare multiple bonds side by side.Last is by formula. I suppose if the power goes out you still have this method. The good thing about the formula is the ability to see how the value comes to pass. Also if you need to search for other unknown values the formula helps with that.VB=Nt=INT(1+Rd)t+M(1+Rd)N(Brigham 185)Brigham, Ehrhardt. Financial Management: Theory & Practice, 13th Edition. South Western Educational Publishing, 03/2010. .The value of a bond is determined by the formula Bond Value = INT[1/rd - 1/rd(1+rd)^n] + M/(1+rd)^n, where INT is the coupon payment, n is the number

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