HTA 602 Lecture Notes - Lecture 7: Accrued Interest, Fisher Hypothesis, Debenture

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

Present value of cash flows as rates change. Bond value = pv of coupons + pv of par. Bond value = pv annuity + pv of lump sum. Remember, as i(cid:374)te(cid:396)est (cid:396)ates i(cid:374)(cid:272)(cid:396)ease the pv"s de(cid:272)(cid:396)ease. So, as interest rates increase, bond prices decrease and vice versa. Consider a bond with a coupon rate of 10% and coupons paid annually. The par value is and the bond has 5 years to maturity. B = 100[1 1/(1. 11)5] / . 11 + 1000 / (1. 11)5. B = 369. 59 + 593. 45 = 963. 04. N = 5; i/y = 11; pmt = 100; fv = 1000. Suppose you are looking at a bond that has a 10% annual coupon and a face value of . 20 years to maturity and the yield to maturity is 8%. B = pv of annuity + pv of lump sum. B = 100[1 1/(1. 08)20] / . 08 + 1000 / (1. 08)20. B = 981. 81 + 214. 55 = 1196. 36.