Name : Annisa Rahman Dhita

NIM : 20170420269
Class : I IPAcc 2017

Chapter 9

Bond and Their Valuation

A. Bond Definition
A bond is a long-term contract under which a borrower agrees to make payments
of interest and principal, on specific dates, to the holders of the bond. For example, on
January 3, 2006, Allied Food Products borrowed $50 million by issuing $50 million of
bonds. For convenience, we assume that Allied sold 50,000 individual bonds for $1,000
each. Actually, it could have sold one $50 million bond, 10 bonds each with a $5 million
face value, or any other combination that totals to $50 million. In any event, Allied
received the $50 million, and in exchange it promised to make annual interest payments
and to repay the $50 million on a specified maturity date.

Bond and Their

Valuation

Different Types of Characteristic bonds

Bonds
 B. Different Types of Bonds
Bonds, its statement of debt from issuer of the bond to the holder of the bond
along with a promise to repay the principal and the interest coupons later on the due date
of payment. Meanwhile, Coupon interest, that the value of the bonds that receive by the
investor. And then, Yield , is the represent the return on invesment as a precentage of the
total initial invesment.

C. Characteristic Bond
1. Face value, the main of value that will receive the investor when the maturity.
2. Interest rate, the value of the interest will receive usually in 3 or 6 mounth.
3. Maturity, the date when the investor get the main repayment of the bond.
4. Call provision, cotract that give with issuer the right to redeem the bonds under spesified
terms prior to the normal maturity date.
5. Sinking funds, a provision in a bond contract that requires the issuer to retire a portion of
bond issue each year.

Note :

1. Par, the price of bond same with the nominal.

2. At premium, the price of the bond more than nominal.
3. At discount, the price of the bond under the nominal.

The different between Treasury Bond and Corporate Bond

A. Treasury Bonds
1. Minimun risk, because government can handle the change of the economic environment
with their legal.
2. The goals to issued the bond is to support the financial of the government especially to
add the amount of budgeted of the state.
3. With the low risk, the copupon interest not high.
 4. Differed tax.

B. Corporate bonds
1. More high risk than government because the risk depend on eceonomic condition, and
legal by the government.
2. The goals to issued to give support the performance of corporate and hope get the
position in the market share, and to atrack the investor to invest.
3. The coupon interest is high, because it will more atracted for investor.
4. Differed tax, but not all.

Bond Prices Established

 Bond Valuation

 Bond Yield
Divided by two :
a. Yield to maturity (YTM), the rate of return earned on a bond if it is held to maturity.
b. Yield to Call, the rate of the return earned on a bond if its called before its maturity
date.

c. Current yield, the annual interest payment on a bond divided by the bond’s current
price.
 Bonds with semianual coupon