Topic
Evaluating Bond Value
Instructions
- Understand the relationship between interest rates and bond values.
- Review how time to maturity and the coupon rate affect interest rate risk.
- Compare and contrast the characteristics of zero coupon bonds, government bonds and corporate bonds.
- Describe the difference between real and nominal rates.
Answer preview
In evaluating bond value, we use interest rate and coupon rate. Coupon rate is the value percentage of what needs to be paid periodically for a certain duration. For example, 1000 bond can be paying coupon rates of 10% each month. This means that each month the investor will be receiving 100. Another component of evaluating the value of bond is par value. This is the present value of the whole investment.
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