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7 Cards in this Set
- Front
- Back
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15.64A - To value a bond one must:
- Estimate the.... -Determine the .... -Calculate the.... |
1. Estimate the amount and timing of the bond's future payment of interest and principal
2. Determine the appropriate discount rate 3. Calculate the sum of the PV of the bond's CF's |
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15.64C - To compute the value of an option-free coupon bond
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Value the coupon payments as an annuity and add the PV of the principal repayment at maturity
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15.64C - The change in the value that is attributable to a chnage in the discount rate
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Can be calculated as the change in the bond's PV based on the new discount rate (yield)
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15.64D - When interest rates (yields) do no change, a bond's price will....
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A bond's price will move toward its par value as time passes and the maturity date approaches
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15.64D - To compute the change in value that is attributable to the passage of time?
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Revalue the bond with a smaller number of periods to maturity
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15.64F - A treasury spot yield curve is considered "arbitrage-free" if
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The PV's of treasury securities calculated using these rates are equal to equilibrium market prices.
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15.64F - If bond prices are not equal to their arbitrage-free values, dealers can generate arbitrage profits by
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By buying the lower-priced alternative (either the bond or the individual CF's) and selling the higher-priced alternative (either the individual CF's or a package of the individual CF's equivalent to the bond)
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