CORPORATE BONDS

A corporate bond is a long term debt which has a maturity date. It is a type of bond where the the
fim pay back the money of the one who contracted the bond at due date plus interest. The coupon
interest rate ona bond represents the percentage of the bond’s par value that will be paid annually,
typically in two equal semiannual payments, as interest. Bonds are issued in two principal market :

- Eurobonds market A bond issued by an international borrower and sold to investors in

countries with currencies other than the currency in which the bond is denominated.
- Foreign bond market A bond issued in a host country’s financial market, in the host country’s
currency, by a foreign borrower.

The value of the bond is the present value of the expected cashflow of the bond.

To find the value of a bond,this formula can be used:

Example :

Consider a fixed-coupon bond whose features are the following:

•face value: $1,000

•coupon rate: 12%

•coupon frequency: Annually

• maturity: 10 years

Interest rate : 8%

What are the future cash flows delivered by this bond?

Interest can be paid semiannually. In this case, the formula is:

Example 2

Consider a fixed-coupon bond whose features are the following:

•face value: $3,000

•coupon rate: 10%

•coupon frequency: semiannual

•maturity: 13 years

Interest rate : 7%

What are the future cash flows delivered by this bond?

Example 3

A company issued a common rate with a face value of $1,500. The coupon interest is 120. It is a
annually bond with interest of 6% and maturity of 8 years. Calculate the value of the bond at
maturity date.