Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Typically in a bond, we find an inverse relation between the price and the required yield. We know that the price of the bond is the present value of cash flows. If the required yield increases, the present value of the cash flow declines and hence the bond value also declines. Let us compute the relationship between the price and the required yield for a bond with a coupon rate of 10% with par value of Rs.100 maturing after 10 years for different required yields as per the table given below:
Table 1: Price-Yield Relationship
Yield (in %)
Price in Rs.
4
148.70
6
129.40
8
113.40
10
100.05
12
88.70
14
79.16
16
71.53
18
64.04
Figure 1: Price/Yield Relationship for an Option Free Bond
If we plot a graph the price-yield relationship, we get a convex curve as seen above in the graph. This convexity has important implications with investment characteristics of a bond. Whenever yields in the market change, the bond prices also change to compensate the yield expectations of the investor. For example, if the coupon rate of a bond is 11% and the present market coupon rate for similar bonds is 12%, then the bond value gets depleted as it yields only 11% as against the current market yield of 12%. Conversely, if the current market yield is 9.5%, then the bond gets traded at premium as the bond under reference gives an yield of 11% as against the current yield of 9.5%. When the bond is sold below par value, then it is said to be sold at a discount. When the bond is sold above par value, it is said to be traded at a 'premium'. It can be summed up as follows:
Coupon rate = Required yield then price = Par value
Coupon rate < Required yield then price < Par (discount)
Coupon rate > Required yield then price > Par (premium).
Accounts receivable are sometimes not collected. Why do companies extend trade credit when they could insist on cash for all sales? Extending trade credit almost all the time le
What is nondiversifiable risk? How is it measured? If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which
Fundamental ingredients of Management of working capital Management of working capital has two fundamental ingredients: (1) an overview of working capital management as a wh
Can a business have a positive accounting profit and a negative economic profit? Please explain.
The first involved the creation of spreadsheets to resolve some problems for an organization. You will need to model the problem roughly before you start to spreadsheet and you wil
A Certificate of Deposit (CD) can be defined as a negotiable promissory note, secure and short-term in nature. CDs are issued at a discount to the face value, the
how would you incorporate currency exchange risk into the capital budgeting process of foreign investment.
For this assessment, you will be required to select a role within the financial services industry that interests you. Undertake your own research to find out about the role you hav
I NC O terms You learnt that specifications, delivery period and destination are all dependent factors on a particular project. Let us know about the internati
Describe the Concept of Block of Assets? (a) Comment on the techniques of Risk Analysis commonly employed in Capital Budgeting. (b) Define clearly the concept of block of as
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd