Business Finance

(MGT 232)

Lecture 10

4-1
Bond
Bond Valuation
Valuation

4-2
 Overview of the Last Lecture

• Bond Valuation
• Zero Coupon and Coupon bond valuation
• Semiannual coupon bond valuation
• Bond Yield
• YTM
• YTC

4-3
 Bond Yield

• Yield to Maturity
The return earned on bonds held till maturity is defined as YTM

• Yield to Call
The return earned on bonds held till called is defined as YTC

• It is used by investors to consider different bonds and

expected return

4-4
 Yield to Maturity

Formula:

4-5
 Yield to Maturity

Company issued a bond with the par value of Rs. 1000 at a

coupon interest rate of 10% for 14 years. If the value of a
bond is Rs. 1494.93, find the yield to be earned by the
investor on the bond if held till maturity.

4-6
Yield to Maturity

4-7
Yield to Maturity

4-8
Yield to Maturity

4-9
 Yield to Call

• Formula

4-10
 Yield to Call

• Company issued a bond with the par value of Rs. 1000 at a

coupon interest rate of 10% for 14 years and are callable after
10 years at a call price of Rs. 1100. If the value of a bond is Rs.
1494.93, find the yield to be earned by the investor on the
bond if held till called.

4-11
Yield to Call

4-12
Yield to Call

4-13
Yield to Call

4-14
Yield to Call

4-15
Bond yield with Semiannual Compounding

4-16
 Current Yield

• The annual interest payment divided by the bonds current

price is the current yield
• Provides information about cash income gained by bond
• Doesn’t provide information about actual total expected rate

4-17
 Current Yield

• A 1000, 10% coupon bonds were currently selling at Rs. 985,

their current yield would be?

4-18
 Summary
• Yield to Maturity
• Yield to Call
• Semiannual Compounding for YTM and YTC
• Current Yield

4-19