Busn 233 CH 06

Milk Price now
Number of milk cartons bought

Total price (Buying power = 100 cartons)
Amount now in bank
APR (n=1) = R = Nominal
Bank amount in 1 year
Milk price in 1 year
Milk Inflation = 3.56/3.39 -1 = h
Can you buy 10.00% more (Number of cartons)?
How many can you buy today = $372.90/3.56 =
1 Change in Buying Power =
2 Real Rate = r =
Real Rate of return is = how much more can we buy
with our money!!!
$3.39
100
$339.00
10%
$3.56
h
110
r = (1+R)/(1+h)-1 =
Change in buying power
Milk Price now

Number of milk cartons bought
Total price (Buying power = 100 cartons)
$3.39
100
$339.00
Amount now in bank

APR (n=1) = R = Nominal
Bank amount in 1 year
$339.00
10%
$372.90
Milk price in 1 year

Milk Inflation = 3.56/3.39 -1 = h
Can you buy 10.00% more (Number of cartons)?
How many can you buy today = $372.90/3.56 =
1 Change in Buying Power =
2 Real Rate = r =
Real Rate of return is = how much more can we buy
with our money!!!
$3.56
5.0147%
110
104.7472
0.0474719
4.7472%
r = (1+R)/(1+h)-1 =
Change in buying power
Nominal Rate = (Annual Rate, n = 1)

Inflation
3 Change in buying power = Real Rate
0.12 R
0.06 h
r

Inflation
0.01 R
0.015 h
r

Inflation
0.015 R
0.01 h
r
Just like the stock market, going up looks bigger than going down (going
down you can only loose 100%, but up can be bigger than 100%)

Inflation
0.12 R
0.06 h
0.056603774 r

Inflation
0.01 R
0.015 h
-0.00492611 r

Inflation
0.015 R
0.01 h
0.00495050 r
Just like the stock market, going up looks bigger than going down (going
down you can only loose 100%, but up can be bigger than 100%)
Point of View: Bond Issuer

Interest Only - Coupon Bond
Bond Issue Date
1/1/2010
Face Value = FV
($1,000.00)
i = Coupon Rate
10.00%
n
2
x
3
i/n
x*n
PMT Coupon PMT
YTM
11.00%
YTM/n
PV
check:
Point of View: Bondholder #1

Day #1 buys bond
1/1/2010
Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
3
i/n
x*n
PMT
YTM
11.00%
YTM/n
PV
check:

Deep Discount - Zero Coupon Bonds
Face Value = FV
($1,000.00)
i = Coupon Rate
10.00%
n
2
x
3
i/n
0.00%
x*n
0
YTM
11.00%
YTM/n
0.00%
PV
check:

Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
3
i/n
0.00%
x*n
0
YTM
11.00%
YTM/n
0.00%
PV
check:
10
Point of View: Bondholder #2 (This

person buys the bond from
Bondholder #1)
Day #2 buys bond
1/1/2012
Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
1
i/n
x*n
PMT Coupon PMT
YTM
9.00%
YTM/n
PV
check:

Bond Issue Date
1/1/2010
Face Value = FV
($1,000.00)
i = Coupon Rate
10.00%
n
2
x
3
i/n
5.00%
x*n
6
PMT Coupon PMT
($50.00)
YTM
11.00%
YTM/n
5.50%
PV
$975.02
check:
$975.02

Day #1 buys bond
1/1/2010
Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
3
i/n
5.00%
x*n
6
PMT
$50.00
YTM
11.00%
YTM/n
5.50%
PV
($975.02)
check:
($975.02)

Face Value = FV
($1,000.00)
i = Coupon Rate
10.00%
n
2
x
3
i/n
5.00%
x*n
6
YTM
11.00%
YTM/n
5.50%
PV
$725.25
check:
$725.25

Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
3
i/n
5.00%
x*n
6
YTM
11.00%
YTM/n
5.50%
PV
($725.25)
check:
($725.25)
10
Point of View: Bondholder #2 (This

person buys the bond from
Bondholder #1)
Day #2 buys bond
1/1/2012
Face Value = FV
$1,000.00
i = Coupon Rate
10.00%
n
2
x
1
i/n
5.00%
x*n
2
PMT Coupon PMT
$50.00
YTM
9.00%
YTM/n
4.50%
PV
($1,009.36)
check:
($1,009.36)
Point of View: Bondholder #2 (This person buys

the bond from Bondholder #1)
Bond Price = PV
-1,009.36
FV = Face Value
$1,000.00
PMT = Coupon PMT
$50.00
Years To Maturity
1
n = assumed to be semi-annual =
2
Total Number of Periods
YTM/n
YTM
Effective Annual Yield
check
Point of View: Bondholder #2 (This person buys the

bond from Bondholder #1)
Bond Price = PV
-1,009.36
FV = Face Value
$1,000.00
PMT = Coupon PMT
$50.00
Years To Maturity
1
n = assumed to be semi-annual =
2
Total Number of Periods
2
YTM/n
4.50%
YTM
9.00%
Effective Annual Yield
9.2025%
check
0.092025
1 Year 10% Coupon Bond is priced at 100.936%
1 Year 10% Coupon Bond is priced at 100.936%

Years To Maturity
n
Total Periods
Face
Coupon Rate
Interest PMT = Coupon PMT
Quoted Price
Price = PV
YTM/n
YTM
Effective Annual Rate
1
2
2
1000
10%
50
1.00936
-1009.36
4.50%
0.090003541
0.0920287
YTM and Price move in

opposite Directions
Point of View =
Face Value = FV =
Maturity = years = x =
n=
Coupon Rate =
Coupon Rate/n =
Semiannual Coupon Payment =
Total # of Coupon Payments =
YTM/n =
YTM =
Bond Price = PV =
Bond Issuer
$1,000.00
30
2
6.00%
3.00%
$30.00
60
3.00%
6.00% YTM = Coupon Rate
1,000.00 Par
YTM and Price move in

opposite Directions
YTM Discount Rate

0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
0.13
0.14
0.15
Bond Issuer
$1,000.00
30
2
6.00%
3.00%
$30.00
60
1.00%
2.00% YTM < Coupon Rate
1,899.10 Premium
Bond Price
$1,347.61
$1,154.54
$1,000.00
$875.28
$773.77
$690.43
$621.41
$563.75
$515.16
$473.85
$438.43
$407.83
$1,600.00
Bond Price
$1,400.00
$1,200.00
Bond Price
Point of View =
Face Value = FV =
Maturity = years = x =
n=
Coupon Rate =
Coupon Rate/n =
Semiannual Coupon Payment =
Total # of Coupon Payments =
YTM/n =
YTM =
Bond Price = PV =
$1,000.00
$800.00
$600.00
$400.00
$200.00
$0.00
0
0.05
0.1
YTM Discount Rate
0.15
0.2
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
10
2
6%
3%
6%
0.03
20
-$30.00
-$1,000.00
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
10
2
6%
3%
7%
0.035
20
-$30.00
-$1,000.00
$928.94 Discount
YTM (Market) Rate For Similar Securities

6%
8%
10.0%
Coupon Rate On Bond (Used To Calculate Interest PMT)

8%
8%
8.0%
Record Bond At
Premium
Record Bond
Without Pre. Or Dis.
Record Bond At
Discount
Below 1.00
(Example: 93 or
0.93 or 93%)
Selling Price For Bond

1.00
(Example: 100 or
1.00 or 100%)
Above 1.00
(Example: 107 or
1.07 or 107%)
Record Bond At
Discount
Record Bond With

No Premium Or
Discount
Record Bond At
Premium
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
7%
0.035
20
-$30.00
-$1,000.00
$928.94
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
YTM Interest Principal Addition Carrying Balance YTM
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
5%
0.025
20
-$30.00
-$1,000.00
$1,077.95
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
YTM Interest Pricipal Addition

$26.95
$26.87
$26.79
$26.71
$26.63
$26.55
$26.46
$26.37
$26.28
$26.19
$26.09
$26.00
$25.90
$25.79
$25.69
$25.58
$25.47
$25.36
$25.24
$25.12
($3.05)
($3.13)
($3.21)
($3.29)
($3.37)
($3.45)
($3.54)
($3.63)
($3.72)
($3.81)
($3.91)
($4.00)
($4.10)
($4.21)
($4.31)
($4.42)
($4.53)
($4.64)
($4.76)
($4.88)
Carrying Balance YTM

$1,077.95
$1,074.89
0.025
$1,071.77
0.025
$1,068.56
0.025
$1,065.28
0.025
$1,061.91
0.025
$1,058.45
0.025
$1,054.92
0.025
$1,051.29
0.025
$1,047.57
0.025
$1,043.76
0.025
$1,039.85
0.025
$1,035.85
0.025
$1,031.75
0.025
$1,027.54
0.025
$1,023.23
0.025
$1,018.81
0.025
$1,014.28
0.025
$1,009.64
0.025
$1,004.88
0.025
$1,000.00
0.025
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
7%
0.035
20
-$30.00
-$1,000.00
$928.94
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
Date
Description
DR
YTM
Pricipal
Interest Addition Carrying Balance
YTM
$928.94
$32.51
$2.51
$931.45
0.035
$32.60
$2.60
$934.05
0.035
$32.69
$2.69
$936.74
0.035
$32.79
$2.79
$939.53
0.035
$32.88
$2.88
$942.41
0.035
$32.98
$2.98
$945.40
0.035
$33.09
$3.09
$948.49
0.035
$33.20
$3.20
$951.68
0.035
$33.31
$3.31
$954.99
0.035
$33.42
$3.42
$958.42
0.035
$33.54
$3.54
$961.96
0.035
$33.67
$3.67
$965.63
0.035
$33.80
$3.80
$969.43
0.035
$33.93
$3.93
$973.36
0.035
$34.07
$4.07
$977.42
0.035
$34.21
$4.21
$981.63
0.035
$34.36
$4.36
$985.99
0.035
$34.51
$4.51
$990.50
0.035
$34.67
$4.67
$995.17
0.035
$34.83
$4.83
$1,000.00
0.035
CR
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
7%
0.035
20
-$30.00
-$1,000.00
$928.94
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
Date
Description
1/1/2010 Cash
Discount On BP
Bonds Payable
7/1/2010 Interest Expense
Cash
Discount On BP
DR
CR
$928.94
$71.06
$1,000.00
$32.51
YTM
Pricipal
YTM
$928.94
$32.51
$2.51
$931.45
0.035
$32.60
$2.60
$934.05
0.035
$32.69
$2.69
$936.74
0.035
$32.79
$2.79
$939.53
0.035
$32.88
$2.88
$942.41
0.035
$32.98
$2.98
$945.40
0.035
$33.09
$3.09
$948.49
0.035
$33.20
$3.20
$951.68
0.035
$33.31
$3.31
$954.99
0.035
$33.42
$3.42
$958.42
0.035
$33.54
$3.54
$961.96
0.035
$33.67
$3.67
$965.63
0.035
$33.80
$3.80
$969.43
0.035
$33.93
$3.93
$973.36
0.035
$34.07
$4.07
$977.42
0.035
$34.21
$4.21
$981.63
0.035
$34.36
$4.36
$985.99
0.035
$34.51
$4.51
$990.50
0.035
$34.67
$4.67
$995.17
0.035
$34.83
$4.83
$1,000.00
0.035
$30.00
$2.51
DR=CR
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
5%
0.025
20
-$30.00
-$1,000.00
$1,077.95
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
Date
Description
DR
YTM
Pricipal
YTM
$1,077.95
$26.95
($3.05)
$1,074.89
0.025
$26.87
($3.13)
$1,071.77
0.025
$26.79
($3.21)
$1,068.56
0.025
$26.71
($3.29)
$1,065.28
0.025
$26.63
($3.37)
$1,061.91
0.025
$26.55
($3.45)
$1,058.45
0.025
$26.46
($3.54)
$1,054.92
0.025
$26.37
($3.63)
$1,051.29
0.025
$26.28
($3.72)
$1,047.57
0.025
$26.19
($3.81)
$1,043.76
0.025
$26.09
($3.91)
$1,039.85
0.025
$26.00
($4.00)
$1,035.85
0.025
$25.90
($4.10)
$1,031.75
0.025
$25.79
($4.21)
$1,027.54
0.025
$25.69
($4.31)
$1,023.23
0.025
$25.58
($4.42)
$1,018.81
0.025
$25.47
($4.53)
$1,014.28
0.025
$25.36
($4.64)
$1,009.64
0.025
$25.24
($4.76)
$1,004.88
0.025
$25.12
($4.88)
$1,000.00
0.025
CR
Years To Maturity
n
Coupon Rate
Coupon Rate/n
YTM
YTM/n
Total Periods
Coupon PMT
Face
PV = Price
Period
10
2
6%
3%
5%
0.025
20
-$30.00
-$1,000.00
$1,077.95
Coupon
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
$30.00
Date
Description
1/1/2010 Cash
Premium On BP
Bonds Payable
7/1/2010 Interest Expense
Premium On BP
Cash
DR
CR
$1,077.95
$77.95
$1,000.00
$26.95
$3.05
YTM
Pricipal
YTM
$1,077.95
$26.95
($3.05)
$1,074.89
0.025
$26.87
($3.13)
$1,071.77
0.025
$26.79
($3.21)
$1,068.56
0.025
$26.71
($3.29)
$1,065.28
0.025
$26.63
($3.37)
$1,061.91
0.025
$26.55
($3.45)
$1,058.45
0.025
$26.46
($3.54)
$1,054.92
0.025
$26.37
($3.63)
$1,051.29
0.025
$26.28
($3.72)
$1,047.57
0.025
$26.19
($3.81)
$1,043.76
0.025
$26.09
($3.91)
$1,039.85
0.025
$26.00
($4.00)
$1,035.85
0.025
$25.90
($4.10)
$1,031.75
0.025
$25.79
($4.21)
$1,027.54
0.025
$25.69
($4.31)
$1,023.23
0.025
$25.58
($4.42)
$1,018.81
0.025
$25.47
($4.53)
$1,014.28
0.025
$25.36
($4.64)
$1,009.64
0.025
$25.24
($4.76)
$1,004.88
0.025
$25.12
($4.88)
$1,000.00
0.025
$30.00
Bond Face Value = FV =

Coupon Payment
Coupon Rate =
n=
-$1,000.00
-$100.00
10.00%
1
1
30
Time To Maturity
years = 1
years = 30
YTM
5%
10%
15%
20%
The Longer The Maturity, The More YTM Affects Bond Price
cts Bond Price

Coupon Payment
Coupon Rate =
n=
YTM
5%
10%
15%
20%
-$1,000.00
-$100.00
10.00%
1
1
30
Time To Maturity
years = 1
years = 30
$1,047.62 $1,768.62
$1,000.00 $1,000.00
$956.52
$671.70
$916.67
$502.11
Bond Value
$2,000.00
$1,800.00
$1,600.00
$1,400.00
$1,200.00
$1,000.00
$800.00
$600.00
$400.00
$200.00
$0.00
$1,768.62
$1,047.62
$1,000.00
$1,000.00
$956.52
$916.67
$671.70
$502.11
5%
10%
15%
YTM
20%
cts Bond Price
years = 1
$502.11
years = 30
Years To Maturity =
YTM Rate Start
YTM Rate Increment =
n=
10
5.00%
5.00%
1,000.00
1
The Lower The Coupon Rate, The More YTM Affects Bond Price
Coupon Rate =
YTM
0.02
2.00% Coupon Rate
5.00% Coupon Rate
0.05
5.0%
15.0%
20.0%
25.0%
Proportionally larger
FV causes lower PV
than Higher Coupon
Bond.
Loss in value from: 0.05 to 0.25
Higher Coupon Payments

earlier are less affected by
discounting than the Bond
with a lower coupon rate.
Difference
$0.00
$0.00
$0.00
$0.00
Years To Maturity =
YTM Rate Start
YTM Rate Increment =
n=
10
5.00%
5.00%
$ 1,000.00
1
The Lower The Coupon Rate, The More YTM Affects Bond Price
Coupon Rate =
0.02
0.05
YTM
2.00% Coupon5.00%
Rate Coupon Rate
Difference
5.0%
$768.35
$1,000.00
15.0%
$347.56
$498.12
20.0%
$245.36
$371.13
25.0%
$178.78
$285.90
Proportiona
lly larger FV Higher Coupon Payments
causes
earlier are less affected by
lower PV
discounting than the Bond
than Higher with a lower coupon rate.
Loss in value from: 0.05 to 0.25
-0.7673134
-0.714100654
$231.65
$150.56
$125.77
$107.12
The Lower The Coupon Rate, The More YTM

Affects Bond Price
$1,200.00
Bond Price
$1,000.00
$800.00
$600.00
5.00% Coupon Rate
$400.00
2.00% Coupon Rate
$200.00
$0.00
$768.35
$347.56
$245.36
YTM
$178.78
Tax Bracket
Corportae Bond Pays Coupon =
Muni Bond Pays Coupon =
After Tax Rate For Muni
After Tax For Corporate
25%
5%
3.90%
Tax Bracket
Corportae Bond Pays Coupon =
Muni Bond Pays Coupon =
After Tax Rate For Muni
After Tax For Corporate
25%
5%
3.90%
3.90%
0.0375
Point of View =
Face Value = Par Value =
# of Bonds Issued =
Total Face Value = FV =
Coupon Rate =
# Compounding periods per Year = n =
Coupon Rate/n =
Periodic Coupon payments (Interest $ Amount) = PMT =
Years To Maturity = x =
Total Number of Periods = n*x =
Discount Rate = Required Yield = i = YTM =
YTM/n =
Bond Value = Bond Price = PV (using PV function) =
Effective Annual Yield = (1+YTM/n)^n -1 =
Words:
Bondholder's
$1,000.00
1
10.00%
2
20
12.00%
check:
<<
<<
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Words:
Bondholder's
$1,000.00
1
$1,000.00
10.00%
2
5.00%
$50.00
20
40
12.00%
0.06
check:
($849.54) <<
($849.54)
12.36% <<
0.1236
The Bond with a 10.00% coupon is priced to yield 12.00% a
This Bond is selling at a Discount. Further, the Effective Ann
12.36%.
% coupon is priced to yield

Bond is selling at a Discount.
Annual Yield is 12.36%.
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Bond Value = Bond Price =
Words:
Bondholder's
$1,000.00
1
8.00%
2
($911.37)
check:
0
check FV:
$911.37
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Bondholder's
$1,000.00
1
$1,000.00
8.00%
2
4.00%
$40.00
6
12
0.099999398
4.999970%
($911.37)
10.25%
check:
0.102499
The Bond with a 8.00% coupon is priced to yield 10.00% at $

Bond is selling at a Discount. Further, the Effective Annual Yi
Words:
check FV:
$1,000.00
pon is priced to yield 10.00%

ing at a Discount. Further, the
al Yield is 10.25%.
15 a
15 b
15 a
15 b
The Price of a Bond and the YTM are inversely related. If the YTM goes up, the Bond Price goes down
(more interest is taken out during discounting). If the YTM goes down, the Bond Price goes up (less
interest is taken out during discounting).
Bonds that sell at a Premium over Par do so because the Coupon Rate of the Bond is greater than the
YTM (Bondholders are willing to pay more to get a Coupon Rate that is higher than the YTM (market
rate).
Bonds that sell at a Discount compared to Par do so because the Coupon Rate of the Bond is less than
the YTM (Bondholders are only willing to pay less than par because they are getting a Coupon Rate
that is lower than the YTM (market rate).
Coupon Rate > YTM ==> Sell at Premium
Coupon Rate = YTM ==> Sell at Par
Coupon Rate < YTM ==> Sell at Discount
Bond Price
n, the Bond
Bond is
ate that is
of the Bond
e they are
Point of View =
Coupon Rate =
Years to Maturity =
Bond Face =
n=
PMT =
YTM when originally issued =
YTM today =
Price when Issued
Price Today
Words:
Bondholder's
7.00%
20
1,000.00 made up number
1 made up number
10.00% made up number
15.00%
Point of View =
Coupon Rate =
Years to Maturity =
Bond Face =
n=
PMT =
YTM when originally issued =
YTM today =
Price when Issued
Price Today
Words:
Bondholder's
7.00%
20
1,000.00 made up number
1 made up number
70.00
10.00% made up number
15.00%
-744.59
-499.25
Price and YTM are inversely related. If a 7.00% Coupon Bond is priced at an YTM of 15.00
was used to value it when it was first issued, the Price will go down. For example, If the B
and it is reprice at a YTM of 15.00%, the price would go from $744.5
nd is priced at an YTM of 15.00% that is greater than

the Price will go down. For example, If the Bond was
.00%, the price would go from $744.59 to $499.25.
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Effective Annual Yield = (1+YTM/n)^n =
Words:
Bondholder's
1000
1
7.00%
1
8
9.00%
Check:
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Words:
Bondholder's
1000
1
1000
7.00%
1
7.00%
70
8
8
9.00%
0.09
Check:
($889.30)
-889.304
9.00%
The Bond with a 7.00% coupon is priced to yield 9.00% at $
Bond is selling at a Discount. Further, the Effective Annual Yi
pon is priced to yield 9.00%

lling at a Discount. Further,
ual Yield is 9.00%.
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Effective Annual Yield (Math) =
Words:
Bondholder's
1000
1
10.00%
1
($1,145.70)
0.00%
Point of View =
# of Bonds Issued =
Coupon Rate =
Coupon Rate/n =
YTM/n =
Effective Annual Yield (Math) =
Words:
Bondholder's
1000
1
1000
10.00%
1
10.00%
100
9
9
0.076969468
7.696947%
($1,145.70)
7.70%
7.70%
The Bond with a 10.00% coupon is priced to yield 7.70% at
This Bond is selling at a Premium. Further, the Effective Ann
7.70%.
upon is priced to yield 7.70%

elling at a Premium. Further,
ual Yield is 7.70%.
Point of View =
# of Bonds Issued =
Coupon Rate =
Type = 0 =
Bond Issuer's
1,000.00
1
1
16
7.50%
0
963.00
Point of View =
# of Bonds Issued =
Coupon Rate =
Type = 0 =
Bond Issuer's
1,000.00
1
-1,000.00
0.070952527
1
-70.95
16
7.50%
0
963.00
Point of View =
Years to Maturity on Contract =
Number of Years ago that Bond Was Issued =1
Years Left In Contract = X =
Coupon Rate =
n=
n *x =
Coupon Rate /n =
Periodic Interest PMT = PMT =
Face Value = Par Value = FV =
YTM =
YTM/n =
Bond Price =
Words:
Bondholder's
15
1
14
6.10%
2
1,000.00
5.30%
Point of View =
Coupon Rate =
n=
n *x =
Coupon Rate /n =
YTM =
YTM/n =
Bond Price =
Words:
Bondholder's
15
1
14
6.10%
2
28
0.0305
30.50
1,000.00
5.30%
0.0265
-1,078.37
The 6.10% Coupon Bond is priced to yield
5.30% at $1,078.37.
Point of View =
Coupon Rate =
n=
n *x =
Coupon Rate /n =
Current Bond Price (% of Par)
Current Bond Price =
YTM/n =
YTM = YTM/n*n =
Words:
Bond Issuer's
15
2
8.40%
2
-1,000.00
108.00%
Point of View =
Coupon Rate =
n=
n *x =
Coupon Rate /n =
Current Bond Price (% of Par)
Current Bond Price =
YTM/n =
YTM = YTM/n*n =
Words:
Bond Issuer's
15
2
13
8.40%
2
26
0.042
-42.00
-1,000.00
108.00%
1,080.00
3.714889256723210000%
0.074297785
The 8.40% Coupon Bond with 13 years left
until maturity has a YTM of 7.43%.
Nominal Rate = R =
Inflation Rate = h =
Real Rate = r = (1+R)/(1+h)-1 =
Words:
Approximate r = R - h
5.70%
2.90%
Nominal Rate = R =
Real Rate = r = (1+R)/(1+h)-1 =
Words:
Approximate r = R - h
5.70%
2.90%
0.027210884
The real rate (the percentage
change in buying power) = r =
2.7211%.
2.80%
Notice: End/Beg - 1 = Proportional Change =

$1.057/$1.029 - 1
Nominal Rate = R =
Inflation Rate = h = (1+R)/(1+r)-1 =
Real Rate = r =
Words:
13.00%
7.00%
Nominal Rate = R =
Inflation Rate = h = (1+R)/(1+r)-1 =
Real Rate = r =
Words:
13.00%
5.6075%
7.00%
If the real rate (the percentage change in
buying power) = r = 7.0000% and the
Nominal Rate is R = .13.0000%, then the
inflation rate = h = 5.6075%.
Nominal Rate = R =
Real Rate = r = (1+R)/(1+h)-1 =
Words:
17.00%
3.20%
Nominal Rate = R =
Real Rate = r = (1+R)/(1+h)-1 =
Words:
17.00%
3.20%
0.13372093
The real return = r = 13.3721%.
Point of View
1 Bond = Face Value
Coupon Rate
n
Coupon Rate/n
Interest Payment
Clean Price (without accrued interest) =
Months until Interest is Paid
Months in 1 period
Partial Interest That belongs to Buyer
Part of Interest that belongs to seller of Bond
Invoice Price
Bondholder
$1,000.00
0.075
2
($915.00)
2
Point of View
1 Bond = Face Value
Coupon Rate
n
Coupon Rate/n
Interest Payment
Clean Price (without accrued interest) =
Months until Interest is Paid
Months in 1 period
Partial Interest That belongs to Buyer
Part of Interest that belongs to seller of Bond
Invoice Price
Bondholder
$1,000.00
0.075
2
0.0375
$37.50
($915.00)
2
6
$12.50
$25.00
($940.00)
Total Face Value =

Years to Maturity =
YTM =
Coupon Rate =
n=
Coupon PMT =
Tax Rate =
Face Value =
Number Needed =
Price of All Bonds =
20 Year Repayment = Last PMT + FV =
$45,000,000.00
20
0.075
0.075
1
0.35
$1,000.00
Total Face Value =

Years to Maturity =
YTM =
Zero Coupons
n=
Zero Coupons
Tax Rate =
Face Value =
Number Needed =
Price of 1 Bond =
20 Year Repayment = (Face Value)*Number Needed =
$45,000,000.00
20
0.075
1
0.35
$1,000.00
Total Face Value =

Years to Maturity =
YTM =
Coupon Rate =
n=
Coupon PMT =
Tax Rate =
Face Value =
Number Needed =
Price of All Bonds =
20 Year Repayment = Last
PMT + FV =
PV
$45,000,000.00
20
0.075
0.075
Total Face Value =

Years to Maturity =
YTM =
1
$3,375,000.00
0.35
$1,000.00
$45,000.00
($45,000,000.00)
n = Semiannual required by
law
Zero Coupons
Tax Rate =
Face Value =
Number Needed =
Price of 1 Bond =
($48,375,000.00)
20 Year Repayment = (Face

Value)*Number Needed =
$45,000,000.00
PV
$45,000,000.00
20
0.075
2
0.35
$1,000.00
196,217.04
$229.34
$196,217,044.15
$45,000,000.00
** Bond Issuer records tax expense (cash flow benefit in) on tax return
records interest revenue (cash flow disadvantage out) on tax
Period Interest
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
$1,687,500.00
$1,750,781.25
$1,816,435.55
$1,884,551.88
$1,955,222.58
$2,028,543.42
$2,104,613.80
$2,183,536.82
$2,265,419.45
$2,350,372.68
$2,438,511.65
$2,529,955.84
$2,624,829.18
$2,723,260.28
$2,825,382.54
Balance
$45,000,000.00
$46,687,500.00
$48,438,281.25
$50,254,716.80
$52,139,268.68
$54,094,491.25
$56,123,034.67
$58,227,648.47
$60,411,185.29
$62,676,604.74
$65,026,977.42
$67,465,489.07
$69,995,444.91
$72,620,274.10
$75,343,534.37
$78,168,916.91
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
$2,931,334.38
$3,041,259.42
$3,155,306.65
$3,273,630.65
$3,396,391.80
$3,523,756.49
$3,655,897.36
$3,792,993.51
$3,935,230.77
$4,082,801.92
$4,235,907.00
$4,394,753.51
$4,559,556.76
$4,730,540.14
$4,907,935.40
$5,091,982.98
$5,282,932.34
$5,481,042.30
$5,686,581.39
$5,899,828.19
$6,121,071.75
$6,350,611.94
$6,588,759.88
$6,835,838.38
$7,092,182.32
$81,100,251.30
$84,141,510.72
$87,296,817.37
$90,570,448.03
$93,966,839.83
$97,490,596.32
$101,146,493.68
$104,939,487.19
$108,874,717.96
$112,957,519.89
$117,193,426.88
$121,588,180.39
$126,147,737.16
$130,878,277.30
$135,786,212.70
$140,878,195.67
$146,161,128.01
$151,642,170.31
$157,328,751.70
$163,228,579.89
$169,349,651.63
$175,700,263.57
$182,289,023.45
$189,124,861.83
$196,217,044.15
Book answer shows rounded numbers, but ca

$196,217.04
229.3378753
flow benefit in) on tax return and bondholder

ow disadvantage out) on tax return.
Cash Flow Benefit to Issuer
$590,625.00
$612,773.44
$635,752.44
$659,593.16
$684,327.90
$709,990.20
$736,614.83
$764,237.89
$792,896.81
$822,630.44
$853,479.08
$885,484.54
$918,690.21
$953,141.10
$988,883.89
Coupon Bond OUT Cash Flow Year 1:

$2,193,750.00
Zeroes IN Cash Flow In Year 1:
$1,203,398.44
$1,295,345.60
$1,025,967.03
$1,064,440.80
$1,104,357.33
$1,145,770.73
$1,188,737.13
$1,233,314.77
$1,279,564.08
$1,327,547.73
$1,377,330.77
$1,428,980.67
$1,482,567.45
$1,538,163.73
$1,595,844.87
$1,655,689.05
$1,717,777.39
$1,782,194.04
$1,849,026.32
$1,918,364.81
$1,990,303.49
$2,064,939.87
$2,142,375.11
$2,222,714.18
$2,306,065.96
$2,392,543.43
$2,482,263.81
r shows rounded numbers, but calculation done on un-rounded numbers.

book answer check:
196215.2263

Busn 233 CH 06

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Busn 233 CH 06

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Milk Price now

Number of milk cartons bought

Change in buying power

Milk Price now

Amount now in bank

Milk price in 1 year

Change in buying power

Nominal Rate = (Annual Rate, n = 1)

Nominal Rate = (Annual Rate, n = 1)

Nominal Rate = (Annual Rate, n = 1)

Nominal Rate = (Annual Rate, n = 1)

Nominal Rate = (Annual Rate, n = 1)

Nominal Rate = (Annual Rate, n = 1)

Point of View: Bond Issuer

Point of View: Bondholder #1

Point of View: Bond Issuer

Point of View: Bondholder #1

Point of View: Bondholder #2 (This

Point of View: Bond Issuer

Point of View: Bondholder #1

Point of View: Bond Issuer

Point of View: Bondholder #1

Point of View: Bondholder #2 (This

Point of View: Bondholder #2 (This person buys

Point of View: Bondholder #2 (This person buys the

1 Year 10% Coupon Bond is priced at 100.936%

1 Year 10% Coupon Bond is priced at 100.936%

YTM and Price move in

YTM and Price move in

YTM Discount Rate

YTM (Market) Rate For Similar Securities

Coupon Rate On Bond (Used To Calculate Interest PMT)

Selling Price For Bond

Record Bond With

YTM Interest Principal Addition Carrying Balance YTM

YTM Interest Pricipal Addition

Carrying Balance YTM

Bond Face Value = FV =

cts Bond Price

Bond Face Value = FV =

cts Bond Price

Higher Coupon Payments

The Lower The Coupon Rate, The More YTM

2.00% Coupon Rate

% coupon is priced to yield

The Bond with a 8.00% coupon is priced to yield 10.00% at $

pon is priced to yield 10.00%

nd is priced at an YTM of 15.00% that is greater than

pon is priced to yield 9.00%

upon is priced to yield 7.70%

Notice: End/Beg - 1 = Proportional Change =

Total Face Value =

Total Face Value =

Total Face Value =

Total Face Value =

20 Year Repayment = (Face

Book answer shows rounded numbers, but ca

flow benefit in) on tax return and bondholder

Coupon Bond OUT Cash Flow Year 1:

r shows rounded numbers, but calculation done on un-rounded numbers.

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