Chapter 7 Handouts

1. Bond (Q5)
http://dailymorocco.com/us-treasury-bonds-moroccos-investments-
exceed-4-billion/

2. Quotation: let’s look at the real time T-bonds

https://www.wsj.com/market-data/bonds/treasuries

3. let’s look at the real-world example of Hercules Capital Issuance

https://www.businesswire.com/news/home/20201104005760/en
 Bond rating: investment grade (Q7)

 Pricing: Bond Value = PV of coupons + PV of par

= PV of annuity + PV of lump sum

[ ]
1
1-
(1+r )t FV
Bond Value = C +
r (1+r)t (Q2, Q4)

 Discount bond vs premium bond (Q5)

4. Yield to maturity, current yield, coupon rate (Q1, Q9)

5. Different types of bond by issuer: corporate vs government bonds

(treasury bonds and municipal bonds) (Q6, Q8)
 If you are in a 40% tax bracket, which bond do you prefer: 6%
municipal bonds or 8% corporate bonds?
 What would be the tax rate that makes you indifferent between
these two bonds?

6. Real interest, nominal interest, inflation, and Fisher Effect: (Q3)

(1 +R) = (1 + r)(1 + h)
 If we require a 5% real return and we expect inflation to be 2%,
what is the nominal rate?
7. Factors that affect bond yield (Q10, Q11)

8. Another numerical problem: find the coupon rate:

 The price of a $1,000 par value bond that makes coupon
payment semiannually is $934.05. If the bond is priced to yield
5% and it has 9 years to maturity, what is the coupon rate on
this bond? What is the current yield on this bond?