MATH 2FM3 Lecture Notes - Lecture 19: Credit Risk, High-Yield Debt
7 Nov 2015
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That is not always the case with bonds issued by corporations, e. g. for junk bonds: rating agencies (moody, standard & poor) rate the risk of default on interest and principal payments associated with bond issuer. This risk, called credit risk will be re ected on bond prices. 4. 1 determination of bond prices: a bond is a contract that speci es a schedule of payments that will be made by the. The price of the bond will be the present value of its future payments, discounted at the yield rate 1. 67%. 1 (this is indicated by the current market conditions and it can change over time), so the bond price is (cid:20) 4. 1. 1 the price of a bond on a coupon date: let f the face amount (also called the par value) of the bond; r the coupon rate per coupon period (six months unless otherwise speci ed); 1+j the bond price is (cid:20) 1 (cid:21)
