Ch6 Notes Jan17,2018

Topics 1. Bonds Theories: Definition, Types and Characteristics.

2. Bonds Valuation

3. determinants of market interest rates

Calculation Call Provision,

And Terms Sinking Funds Provision,
YTM,
YTC,
Current Yield
rd
r*
IP
LP
DRP
MRP

Questions 1. What are the three main types of bonds? List the key characteristics of
bonds.
- Read text book P159-163
- Compare ordinary annuity and bond’s characters.
2. What is “Call Provision?” Why is a call provision advantageous to a bond
issuer but harmful to investor?
- Read text book r P161-162 and PPT
- List the relation between market rate and bonds’ coupon rate.
3. What is Sinking Funds Provision? List the features of Sinking Funds.
- Read text book P162
- The difference between call, retractable and sinking funds.
4. What’s the difference between YTM and YTC? When will the bond issuer
call the bonds back? Explain the links between premium bond, discount
bond, rd and coupon rate.
- Read text book chapter P169-171
- Read Figure 6-2 and PPT
5. What are the determinants of market interest rates (rd)? How to
calculate Inflation Premium?
- Read text book P173

Examples YTM, YTC, Current Yield: P 187, P6-1,2,3,4; P188, P6-16,17;P189, P6-25
YTM and YTC semiannual paid bonds: P187, P6-7,8
Rd; P187, P6-5,6;P 188,6-18