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Complete the online quiz covering Hedge Fund Protection in Bear Markets (page 68) and Linking the Pieces Together (page 71) before the deadline today at 5:00 PM. You have 9 minutes for 9 questions to earn 9 points. Additionally, the upcoming TVM Quiz will start on February 18th, covering topics like Annuities and Bond Pricing. Prepare for the Midterm exam by reviewing lecture materials, with the exam scheduled for March 12th. Don't forget to save your responses!
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Online Quiz 3 • Due today 5:00 pm • Covers • Hedge Fund Protection in Bear Markets for the Retail Investor (page 68) • Linking the Pieces Together—and Then Some (page 71) • You are given 9 minutes to complete 9 questions for 9 points. • NOTE: Make sure to save all of your responses prior submitting the quiz.
TVM Quiz 2 • Starts at 8:00 am on Monday, February 18th and is due 5:00pm on Friday, February 22nd • Covers • Annuities • Bond Pricing • 40 minutes to complete 5 problems • Practice Problems are available on course webpage
Online Quiz 4 • Starts at 8:00 am on Monday, February 18thand is due 5:00pm on Friday, February 22th • Covers • The Saga of the Beardstown Ladies: Crooks or Just Naive? • Reverse Repos and the Orange County Fiasco • 18 points for 18 questions and 18 minutes to complete
Midterm • Review session for Midterm Exam will be next week (Feb 22) during recitation • Exam will be held on March 12 th in class • Covers lecture material • TVM portion will be held on Blackboard • Dates will be announced • Look over the material we covered in class and e-mail me your questions, so I discuss them in the recitation.
Bonds • Bonds are another way for companies to raise money • Regular Bonds • Callable Bonds • Zero Coupon Bonds • In a regular bond, you purchase the bond and will subsequently be paid interest and the face value after a set amount of time • It’s like a bank loan only you are the banker • You are lending the company money in return for interest payments
Bond Lingo • Par Value (Face Value) • The amount you receive when the bond matures • Coupon payment • The interest payment you receive while holding the bond • Coupon rate • The rate of interest for the coupon payments • Maturity • Bonds don’t go on forever, eventually they mature, and you are paid the par value
Bond Lingo • Yield (Yield to maturity) • The rate of return anticipated on a bond if it is held until the maturity date. • YTM is considered a long-term bond yield expressed as an annual rate. • The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. • It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short
Bond Pricing • TVM steps for bond pricing: • Calculate the coupon payment • Identify the number of payments and adjusted interest rate • Solve the annuity problem regarding the coupon payments • You also have to shift the par value of the bond (that you receive at maturity) to the present day • Sum annuity and single sum • So you really have a single sum and a separate annuity
Bond Formulas • Bond price today • Discounted value of coupon payments • . • Discounted value of Face Value • .
Bond Example • What is today’s value of a $1,000 face value bond with a 5% coupon payment (interest will be paid semiannually) which has 3 years remaining until maturity? The bond is priced to yield 8%.
Solution 1 2. 3.
Solution Continued 4 5.
Another Bond Example • A bond is priced to yield 12%. What is the coupon rate associated with the bond if it pays semiannual coupon payments, has 10 years to maturity, has a $1,000 face value, and is currently priced at $713.25
