MAF203 Lecture Notes - Lecture 4: Bond Duration, Weighted Arithmetic Mean, Cash Flow
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The intrinsic value of an asset = the pv of the stream of expected cash flows discounted at an appropriate rrr. ) n payment at time t value (principal repayment) at maturity of periods maturity to interest rate (yield) Cash flows with a debt investment (debentures, bonds) P n n i interest face number market. De(cid:271)t se(cid:272)u(cid:396)ities that (cid:396)ep(cid:396)ese(cid:374)t (cid:272)lai(cid:373)s agai(cid:374)st issue(cid:396)s(cid:859) assets (cid:894)e. g. (cid:272)o(cid:373)pa(cid:374)y(cid:859)s, go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)ts etc. ). A bond is like a loan that a company/gov obtains from the investors of the bond. Interest payment = fixed for life of contract. The fixed dollar amount that the comp/gov has to pay as interest periodically is called the coupon payment. The principal repayment is called the face value/par value which will be repaid at maturity date. Government issued bonds: commonwealth, state gov, bonds issued by gov owned enterprises. Corporate bonds (issued by companies: coupon bonds, zero coupon bonds, convertible bonds (can be converted to shares)
