Chapter5Bonds, Bond Pricesand theDeterminationofInterestRatesMcGraw-HilyrwinCopyright 2006byTheMcGraw-Hill Companies,Inc.All rights reserved
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 Bonds, Bond Prices and the Determination of Interest Rates
CONTENSC5.1BondsandPresentValue5.2BondYields5.3BondMarket:Supplyand Demand5.4 Why Bonds Are Risky?5.5RiskStructureofInterestRates5.6TermStructureofInterestRates6-2
6-2 CONTENS 5.1 Bonds and Present Value 5.2 Bond Yields 5.3 Bond Market: Supply and Demand 5.4 Why Bonds Are Risky? 5.5 Risk Structure of Interest Rates 5.6 Term Structure of Interest Rates
5.1Bond Pricesa1. Types of Bonds(1) Zero-coupon bonds, which promise a singlefuture payment, such as a U.S. Treasury Bill(2) Fixed payment loans, such as conventionalmortgages.(3) Coupon Bonds, which make periodic interestpayments and repay the principal at maturityU.S. Treasury Bonds and most corporate bondsarecouponbonds.6-3
6-3 5.1 Bond Prices 1. Types of Bonds (1) Zero-coupon bonds, which promise a single future payment, such as a U.S. Treasury Bill. (2) Fixed payment loans, such as conventional mortgages. (3) Coupon Bonds, which make periodic interest payments and repay the principal at maturity. U.S. Treasury Bonds and most corporate bonds are coupon bonds
O(4)Consols统一公债(由英国政府1751年开始发行的长期债券，which makeperiodic interest payments forever, neverrepaying the principalthatwas borrowed(There aren't many examples of these.)6-4
6-4 (4) Consols统一公债(由英国政府1751 年开始发行的长期债券, which make periodic interest payments forever, never repaying the principal that was borrowed. (There aren’t many examples of these.)
BondPricesa2.Zero-Coupon Bonds or Discount BondsPrice of a $100 face value zero-coupon bond$100(1 +i)nWhere i is the interest rate in decimal form and nis time until the payment is made in the sametime units as the interest rate6-5
6-5 Bond Prices 2. Zero-Coupon Bonds or Discount Bonds Price of a $100 face value zero-coupon bond Where i is the interest rate in decimal form and n is time until the payment is made in the same time units as the interest rate n (1 i) $100 + =
CBondPrices08Zero-Coupon Bonds or Discount BondsExamples.Assumei=4%Price of a One-Year Treasury Bill100 = $96.15(1 + 0.04)Price of a Six-Month Treasury Bill100(1 + 0.04)/2 = $98.066-6
6-6 Bond Prices Zero-Coupon Bonds or Discount Bonds Examples. Assume i=4% Price of a One-Year Treasury Bill. Price of a Six-Month Treasury Bill $96.15 (1 0.04) 100 = + = $98.06 (1 0.04) 100 1/ 2 = + =
BondPricesOZero-Coupon Bonds or Discount BondsGiven n, the price of a bond and theinterest rate move inoppositedirections6-7
6-7 Bond Prices Zero-Coupon Bonds or Discount Bonds Given n, the price of a bond and the interest rate move in opposite directions
BondPrices083.Fixed Payment LoansValue of a Fixed Payment Loan :FixedPaymentFixedPaymentt,FixedPayment(1+i)?(1+i)(1+i)n6-8
6-8 Bond Prices 3. Fixed Payment Loans Value of a Fixed Payment Loan = n i FixedPayment i FixedPayment i FixedPayment (1 ) (1 ) (1 ) 2 + + + + + +
CBond Prices08Coupon BondCouponPaymentFaceValueCouponPaymentCouponPaymentPcB+(1+i)2(1+i))(1+i)"(1+i)n6-9
6-9 Bond Prices Coupon Bond CB n n i FaceValue i CouponPayment i CouponPayment i CouponPayment P (1 ) (1 ) . (1 ) (1 ) 1 2 + + + + + + + + =
BondPricesa4. ConsolsYearly Coupon PaymentPconsol16-10
6-10 Bond Prices 4. Consols i Yearly Coupon Payment PConsol =