CH 06

INTRODUCTION TO
CORPORATE FINANCE
Laurence Booth W. Sean Cleary
Prepared by
Ken Hartviksen and Robert Ironside
CHAPTER 6
Bond Valuation and Interest
Rates
Lecture Agenda
Learning Objectives
Important Terms
Basic Structure of Bonds
Bond Valuation
Bond Yields
Interest Rate Determinants
Other Types of Bonds/Debt Instruments
Summary and Conclusions
Concept Review Questions
CHAPTER 6 Bond Valuation and
Interest Rates
6-3
Learning Objectives
The basic features of different types of bonds

How to value bonds given an appropriate discount rate
How to determine the discount rate or yield given the
market value of a bond
How market interest rates or yields affect bond investors
How bond prices change over time
The factors (both domestic and global) that affect
interest rates

Interest Rates
6-4
Important Chapter Terms
Balloon payment
Bills
Bond indenture
Bullet payment
Call prices
Callable bonds
Canada Savings Bonds
Collateral trust bonds
Coupons
Current yield
Debentures
Debt ratings
Default free
Default risk
Discount (premium)
Duration
Equipment trust certificates
Expectations theory
Extendible bonds
Face value
Floating rate bonds
Interest payments
Interest rate parity (IRP)
theory
Interest rate risk
Issue-specific premiums
Liquidity preference theory
Maturity value

Interest Rates
6-5
Important Chapter Terms
Mortgage bonds
Nominal interest rates
Notes
Paper
Par value
Protective covenants
Purchase fund provisions
Real return bonds
Retractable bonds
Risk-free rate
Sinking fund provisions
Spread
Term structure of
interest rates
Term to maturity
Yield curve
Yield to maturity
Zero coupon bond

Interest Rates
6-6
The Basic Structure of Bonds

What is a bond?
In its broadest sense, a bond is any debt
instrument that promises a fixed income
stream to the holder
Fixed income securities are often classified
according to maturity, as follows:
Less than one year Bills or Paper

1 year < Maturity < 7 years Notes
< 7 years Bonds
Interest Rates
6-7

A typical bond has the following
characteristics:
A fixed face or par value, paid to the holder of the
bond, at maturity
A fixed coupon, which specifies the interest payable
over the life of the bond
Coupons are usually paid either annually or semi-annually
A fixed maturity date

Interest Rates
6-8

Bonds may be either:
Bearer bonds
Registered bonds
Bond indenture - the contract between the

issuer of the bond and the investors who hold it
The market price of a bond is equal to the
present value of the payments promised by the
bond
(See the basic pattern of cash flows from a traditional bond on the next slide)

Interest Rates
6-9

Cash Flow Pattern for a Traditional Coupon-Paying Bond
FIGURE 6-1
00
11
II
22
II
33
II
II
nn
II
FF
I = interest payments, and F = principal repayment

Interest Rates
6 - 10
Cash Flow Pattern of a Bond

0
Purchase Coupon
Price
Cash Outflows
to the Investor
Coupon
Coupon
Coupon
Coupon +
Face Value
Cash Inflows
to the Investor
The Purchase Price or Market Price of a bond is simply the present

value of the cash inflows, discounted at the bonds yield-to-maturity
Interest Rates
6 - 11

Bond indenture is the contract between the
issuer and the holder. It specifies:
Details regarding payment terms

Collateral
Positive and negative covenants
Par or face value (usually increments of $1,000)
Bond pricing usually shown as the price per $100 of
par value, which is equal to the percentage of the
bonds face value

Interest Rates
6 - 12

Term-to-maturity the time remaining to the
bonds maturity date
Coupon rate the annual percentage interest
paid on the bonds face value; to calculate
the dollar value of the annual coupon,
multiply the coupon rate by the face value
If the coupon is paid twice a year, divide the annual
coupon by two
Example: A $1,000 bond with an 8% coupon rate will
have an $80 coupon if paid annually or a $40 coupon
if paid semi-annually
Interest Rates
6 - 13
Security and Protective Provisions

Mortgage bonds secured by real assets
Debentures either unsecured or secured
with a floating charge over the firms assets
Collateral trust bonds secured by a pledge
of financial assets, such as common stock,
other bonds or treasury bills
Equipment trust certificates secured by a
pledge of equipment, such as railway rolling
stock

Interest Rates
6 - 14
Security and Protective Provisions

Covenants
Positive covenants things the firm agrees to do
Supply periodic financial statements
Maintain certain ratios
Negative covenants things the firm agrees not to

do
Restricts the amount of debt the firm can take on
Prevents the firm from acquiring or disposing of
assets

Interest Rates
6 - 15
More Bond Features

Call feature allows the issuer to redeem or pay off
the bond prior to maturity, usually at a premium
Retractable bonds allows the holder to sell the
bonds back to the issuer before maturity
Extendible bonds allows the holder to extend the
maturity of the bond
Sinking funds funds set aside by the issuer to
ensure the firm is able to redeem the bond at
maturity
Convertible bonds can be converted into common
stock at a pre-determined conversion price

Interest Rates
6 - 16
Bond Valuation
The value of a bond is a function of:
Par value
Term to maturity
Coupon rate
Investors required rate of return (discount rate is also
known as the bonds yield to maturity)

Interest Rates
6 - 17
Bond Value
General Formula
[ 6-1]
1
1 ( 1 k )n
b
B I
kb
1
F
n
(
1
k
)
Where:
I = interest (or coupon ) payments
kb = the bond discount rate (or market rate)
n = the term to maturity
F = Face (or par) value of the bond

Interest Rates
6 - 18
Bond Valuation: Example

What is the market price of a ten-year, $1,000 bond with a
5% coupon, if the bonds yield-to-maturity is 6%?
1 1 kb n
F
BI

n
k
1
b
b
1 1.06 10
1, 000
50

10
0.06
1.06
Calculator Approach:
1,000
50
10
I/Y
CPT PV 926.40
FV
PMT
N
6
$926.40
Interest Rates
6 - 19
Factors Affecting Bond Prices

Bond Price-Yield Curve
When interest rates increase, bond prices fall

FIGURE 6-2
Price
($)
Market Yield (%)

Interest Rates
6 - 20

The relationship between the coupon rate and the
bonds yield-to-maturity (YTM) determines if the
bond will sell at a premium, at a discount, or at par
If
Then
Bond Sells at a:
Coupon < YTM
Market < Face
Discount
Coupon = YTM
Market = Face
Par
Coupon > YTM
Market > Face
Premium

Interest Rates
6 - 21
Bond Valuation: Semi-Annual Coupons

So far, we have assumed that all bonds have
annual pay coupons. While this is true for
many Eurobonds, it is not true for most
domestic bond issues, which have coupons
that are paid semi-annually
To adjust for semi-annual coupons, we must
make three changes:
Size of the coupon payment (divide by 2)

Number of periods (multiply by 2)
Yield-to-maturity (divide by 2)
Interest Rates
6 - 22
Bond Valuation: Semi-Annual Coupons

For example, suppose you want to value a five-year,
$10,000 Government of Canada bond with a 4%
coupon, paid twice a year, given a YTM of 6%.
kb
1
I
2
B
kb
2
400
2 n
$9,146.98
kb
1
.06
1
2
0.06
2
Calculator Approach:
10,000
FV
400 2 =
PMT
5x2=
N
6 2 = I/Y
CPT PV 926.40
2n
2 x 5
10, 000
.06
1
2 x5

Interest Rates
6 - 23

There are three factors that affect the price
volatility of a bond
Yield to maturity
Time to maturity
Size of coupon

Interest Rates
6 - 24

Yield to maturity
Bond prices go down when the YTM goes up
Bond prices go up when the YTM goes down
Look at the graph on the next slide. It shows

how the price of a 25 year, 10% coupon bond
changes as the bonds YTM varies from 1% to
30%
Note that the graph is not linear instead it is
said to be convex to the origin

Interest Rates
6 - 25

Price and Yield: 25 Year Bond, 10% Coupon

Interest Rates
6 - 26

Bond Convexity
The convexity of the price/YTM graph reveals

two important insights:
The price rise due to a fall in YTM is greater than the
price decline due to a rise in YTM, given an identical
change in the YTM
For a given change in YTM, bond prices will change
more when interest rates are low than when they are
high

Interest Rates
6 - 27

Time to maturity
Long bonds have greater price volatility than short
bonds
The longer the bond, the longer the period for which the
cash flows are fixed
Size of coupon
Low coupon bonds have greater price volatility
than high coupon bonds
High coupons act like a stabilizing device, since a greater
proportion of the bonds total cash flows occur closer to
today & are therefore less affected by a change in YTM
Interest Rates
6 - 28
Interest Rate Risk & Duration

The sensitivity of bond prices to changes in
interest rates is a measure of the bonds
interest rate risk
A bonds interest rate risk is affected by:
Yield to maturity
Term to maturity
Size of coupon
These three factors are all captured in one

number called duration
Interest Rates
6 - 29
Duration
Duration is a measure of interest rate risk
The higher the duration, the more sensitive
the bond is to changes in interest rates
A bonds duration will be higher if its:
YTM is lower
Term to maturity is longer
Coupon is lower

Interest Rates
6 - 30
Bond Quotations
Issuer
Coupon
Maturity
Price
Yield
Canada
5.500
2009-Jun-01
103.79
4.16

Interest Rates
6 - 31
Cash Versus Quoted Prices

The quoted price is the price reported by the
media
The cash price is the price paid by an investor
The cash price includes both the quoted price
plus any interest that has accrued since the
last coupon payment date

Interest Rates
6 - 32
Cash Versus Quoted Price: Example

Assume you want to purchase a $1,000 bond with a 5%
coupon, paid semi-annually. Today is July 15 th. The last
coupon was paid June 30th. If the quoted price is $902,
how much is the cash price?
Solution: The cash price is equal to:
Quoted price of $902
Plus 15 days of interest
Cash price = Quoted Price+ Accrued Interest

15
902 1, 000 0.05
365
902 2.05
$904.05
Interest Rates
6 - 33
Bond Yields
Yield-to-maturity (YTM) the discount rate
used to evaluate bonds
The yield earned by a bond investor who:
Purchases the bond at the current market price

Held the bond to maturity
Reinvested all of the coupons at the YTM
Is the bonds Internal Rate of Return (IRR)

Interest Rates
6 - 34
Bond Yield to Maturity
[ 6-2]
1
1
( 1 YTM)n
B I
YTM
1
F
n
(
1
YTM)
The yield to maturity is that discount rate that causes

the sum of the present value of promised cash flows to
equal the current bond price.
Interest Rates
6 - 35
Solving for YTM

To solve for YTM, solve for YTM in the following
formula:
1 1 YTM n
F
BI

n
YTM
1 YTM
Problem: cant solve for YTM algebraically;

therefore, must either use a financial calculator,
spreadsheet, trial and error, or approximation
formula.
Interest Rates
6 - 36
Solving for YTM

Example: What is the YTM on a 10 year, 5% coupon
bond (annual pay coupons) that is selling for $980?
1 1 YTM n
F
BI

n
YTM
1 YTM
1 1 YTM 10
1, 000
980 50

10
YTM
1 YTM
Financial Calculator
1,000 FV
980 +/- PV
50
PMT
51
N
I/Y
5.26%
YTM 5.26%

Interest Rates
6 - 37
Solving for YTM: Semi-annual Coupons

When solving for YTM with a semi-annual pay
coupon, the yield obtained must be multiplied
by two to obtain the annual YTM
Example: What is the YTM for a 20 year,
$1,000 bond with a 6% coupon, paid semiannually, given a current market price of
$1,030?

Interest Rates
6 - 38
Solving for YTM: Semi-annual Coupons
1 1 YTM n
F
BI

n
YTM
1 YTM
1 1 YTM 40
1, 000
1, 030 30

40
YTM
1
YTM
YTM 2.87 x 2 5.74%

Interest Rates
1,000
FV
1,030 +/- PV
30
PMT
40
N
I/Y
2.87 x 2
= 5.746%
6 - 39
The Approximation Formula

Where
F = Face Value = Par Value = $1,000
B = Bond Price
I = the semi annual coupon interest
N = number of semi-annual periods left to maturity
F-B
I
Semi - annual Yield to Maturity n
FB
2
YTM 2 semi - annual YTM
YTM (1 semi - annual YTM) 2 1
Interest Rates
6 - 40
Example
Find the yield-to-maturity of a 5 year 6%
coupon bond that is currently priced at $850.
(Always assume the coupon interest is paid
semi-annually.)
Therefore there is coupon interest of $30 paid
semi-annually
There are 10 semi-annual periods left until maturity

Interest Rates
6 - 41
Solution
$1,000 $850
F-B
$30
I
$15 $30
10
n
Semi - annual Yield to Maturity
0.0486
FB
$1,850
$925
2
2
YTM 2 semi - annual YTM 0.0486 2 0.09273 9.3%
YTM (1 semi - annual YTM) 2 1 (1.0486) 2 1 9.97%
The
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exams.

Interest Rates
6 - 42
The Logic of the Equation

Approximation Formula for YTM
The numerator simply represents the average semiannual returns on the investment; it is made up of two
components:
The first component is the average capital gain (if it is a discount
bond) or capital loss (if it is a premium priced bond) per semi-annual
period.
The second component is the semi-annual coupon interest received.
The denominator represents the average price of the

bond.
Therefore the formula is basically, average semi-annual
return on average investment.
Of course, we annualize the semi-annual return so that
we can compare this return to other returns on other
investments for comparison purposes.
Interest Rates
6 - 43
Yield to Call
If a bond has a call feature, the issuer can call
the bond prior to its stated maturity
To calculate the yield to call, replace the
maturity date with the first call date

Interest Rates
6 - 44
Yield to Call
[ 6-3]
1
1
( 1 YTC)n
B I
YTC
1
CP
n
(
1
YTC)
The yield to call is that discount rate that causes the

present value of all promised cash flows including the
call price (CP) to equal the current bond price.
Interest Rates
6 - 45
Solving for YTC: Semi-Annual Coupons

YTC on a 20-year 6 percent bond that is callable in five years at a call price of
$1,050. The bond pays semi-annual coupons and is selling for $1,030.
1,050
FV
1,030 +/- PV
30
PMT
10
N
I/Y
3.081 x 2
= 6.16%
1
( 1 YTC)n
B I
CP
YTC
( 1 YTC)n
$1,050
( 1 YTC)10
$1,030 $30

10
YTC
( 1 YTC)
YTC 3.081% semi annually

YTC 3.081% 2 6.16%

Interest Rates
6 - 46
Current Yield
The current yield is the yield on the bonds current
market price provided by the annual coupon
It is not a true measure of the return to the bondholder because
it does not consider potential capital gain or capital losses based
on the relationship between the purchase price of the bond and
its par value.
[ 6-4]
Annual interest
CY
B

Interest Rates
6 - 47
Current Yield
Example
The current yield is the yield on the bonds current

market price provided by the annual coupon
Example: If a bond has a 5.5% annual pay coupon and
the current market price of the bond is $1,050, the
current yield is:
Annual Coupon
Current Market Price
55
1, 050
5.24%
Current Yield =

Interest Rates
6 - 48
Interest Rate Determinants
Interest is the price of money

Basis points 1/100 of 1%
Interest rates go:
Up when the demand for loanable funds rises
Down when the demand for loanable funds falls

Interest Rates
6 - 49
Risk-free Interest Rate

Usually use the yield on short federal
government treasury bills as a proxy for the
risk-free rate (RF)
The risk-free rate is comprised of two
components:
Real rate compensation for deferring consumption
Expected inflation compensation for the expected
loss in purchasing power
(See Figure 6-3 to see rates of inflation and yields on long Canada bonds since 1961)

Interest Rates
6 - 50
Inflation and Yields over Time

FIGURE 6-3

Interest Rates
6 - 51
Fisher Equation
If we call the risk-free rate the nominal rate, then
the relationship between the real rate, the
nominal rate and expected inflation is usually
referred to as the Fisher Equation (after Irving
Fisher)
[ 6-5]
RF Real rate Expected inflation

Interest Rates
6 - 52
Fisher Equation
When inflation is low, can safely use the
approximation formula:
RNominal = RReal + Expected Inflation

When inflation is high, use the exact form of the
Fisher Equation:
1 RNominal = 1 RReal 1 Expected

Interest Rates
Inflation
6 - 53
Fisher Equation
Example
If the real rate is 3% and the nominal rate is 5.5%,

what is the approximate expected future inflation
rate?
RNominal = RReal + Expected Inflation

5.5 3 Expected Inflation
Expected Inflation 2.5%

Interest Rates
6 - 54
Global Influences on Interest Rates

Canadian domestic interest rates are heavily
influenced by global interest rates
Interest rate parity (IRP) theory states that FX
forward rates will be established that equalize
the yield an investor can earn, whether
investing domestically or in a foreign
jurisdiction
A country with high inflation and high interest rates will
have a depreciating currency

Interest Rates
6 - 55
Term Structure of Interest Rates

Is that set of rates (YTM) for a given risk-class
of debt securities (for example, Government
of Canada Bonds) at a given point in time.
When plotted on a graph, the line is called a
Yield Curve

Interest Rates
6 - 56

The Yield Curve is the graph created by putting
term to maturity on the X axis, YTM on the Y
axis and then plotting the yield at each
maturity.
The four typical shapes of yield curves:
Upward sloping (the most common shape)

Downward sloping
Flat
Humped
(See Figure 6-4 for Yield curves that existed at various times in Canada)

Interest Rates
6 - 57
Historical Yield Curves

1990, 1994, 1998, 2004
FIGURE 6-4
16
14
12
Percent
10
8
6
4
2
0
1 mth
3 mths
6 mths
1 yr
2yrs
5 yrs
7 yrs
10 yrs
30 yrs
Term Left to Maturity

1990
1994
1998

Interest Rates
2004
6 - 58
Theories of the Term Structure

Three theories are used to explain the shape
of the term structure
Liquidity preference theory
Investors must be paid a liquidity premium to hold less
liquid, long-term debt
Expectations theory
The long rate is the average of expected future short interest
rates
Market segmentation theory

Distinct markets exist for securities of different maturities

Interest Rates
6 - 59

Risk Premiums
More risky bonds (i.e.. BBB rated Corporate Bonds) will have
their own yield curve and it will plot at higher YTM at every
term to maturity because of the default risk that BBBs carry
The difference between the YTM on a 10-year BBB corporate
bond and a 10-year Government of Canada bond is called a
yield spread and represents a default-risk premium investors
demand for investing in more risky securities.
Spreads will increase when pessimism increases in the
economy
Spreads will narrow during times of economic expansion
(confidence)

Interest Rates
6 - 60
Yield Curves for Different Risk Classes

Risk Premiums (Yield Spreads)
16
14
12
Yield
Spread
Percent
10
8
6
4
2
0
1 mth
3 mths
6 mths
1 yr
2yrs
5 yrs
7 yrs
10 yrs
30 yrs
Term Left to Maturity

BBB Corporates
Government of Canada Bonds

Interest Rates
6 - 61
Risk Premiums
The YTM on a corporate bond is comprised of:
[ 6-6]
k b YTM RF / - Maturity yield differential Spread
The maturity yield differential is explained by the term

structure
Spread is the additional yield due to default risk
Interest Rates
6 - 62
Debt Ratings
All publicly traded bonds are assigned a risk
rating by a rating agency, such as Dominion
Bond Rating Service (DBRS), Standard &
Poors (S&P), Moodys, Fitch, etc.
Bonds are categorized as
Investment grade top four rating categories (AAA,
AA, A & BBB)
Junk or high yield everything below investment
grade (BB, B, CCC, CC, D, Suspended)

Interest Rates
6 - 63
Why Do Bonds Have Different Yields?
Default risk the higher the default risk, the

higher the required YTM
Liquidity the less liquid the bond, the higher
the required YTM
Call features increase required YTM
Extendible feature reduce required YTM
Retractable feature reduce required YTM

Interest Rates
6 - 64
Treasury Bills
Treasury bills are short-term obligations of government
with an initial term to maturity of one year or less
Issued at a discount and mature at face value
The difference between the issue price and the face value
is treated as interest income
To calculate the price of a T-bill, use the following formula
PT Bill
F
n
1 BEY
B
Where:
P = market price of the T Bill
F = face value of the T Bill
BEY = the bond equivalent yield
n = the number of days until maturity
B = the annual basis (365 days in Canada)

Interest Rates
6 - 65
Treasury Bills: Example

What is the price of a $1,000,000 Canadian T bill with
80 days to maturity and a BEY of 4.5%?
PT Bill
B
1, 000, 000
80
1 .045
365
$990, 233.32
1 BEY

Interest Rates
6 - 66
Solving for Yield on a T Bill

To solve for the yield on a T bill, rearrange the previous
formula and solve for BEY.
Example: What is the yield on a $100,000 T bill with
180 days to maturity and a market price of $98,200?
F P B

P n
100, 000 98, 200 365
98, 200
180
3.72%
BEY

Interest Rates
6 - 67
Zero Coupon Bonds

A zero coupon bond is a bond issued at a
discount that matures at par or face value
A zero coupon bond has no reinvestment rate
risk, since there are no coupons to be
reinvested
To calculate the price of a zero coupon bond,
solve for the PV of the face amount

Interest Rates
6 - 68
Zero Coupon Bonds

Example: What is the market price of a $50,000
zero coupon bond with 25 years to maturity that is
currently yielding 6%?
1 kb
50, 000
1.06
25
$11, 649.93
Interest Rates
6 - 69
Floating Rate & Real Return Bonds

Floating rate bonds have a coupon that floats
with some reference rate, such as the yield on
T bills
Because the coupon floats, the market price will
typically be close to the bonds face value
Real return bonds are issued by the

Government of Canada to protect investors
against unexpected inflation
Each period, the face value of the bond is grossed up
by the inflation rate. The coupon is then paid on the
grossed up face value.
Interest Rates
6 - 70
Canada Savings Bonds

A Canada Savings Bond (CSB) is a special
type of bond issued by the Government of
Canada
It is issued in two forms:
Regular interest interest is paid annually
Compound interest interest compounds over the life
of the bond
CSBs are redeemable at any chartered bank

in Canada at their face value
There is no secondary market for CSBs
Interest Rates
6 - 71
Summary and Conclusions

In this chapter you have learned:
About the nature of bonds as an investment
How to value a bond using discounted cash flow
concepts
About the determinants of interest rates and theories
used to explain the term structure of interest rates

Interest Rates
6 - 72
Copyright
Copyright 2007 John Wiley & Sons Canada, Ltd. All rights
reserved. Reproduction or translation of this work beyond that
permitted by Access Copyright (the Canadian copyright licensing
agency) is unlawful. Requests for further information should be
addressed to the Permissions Department, John Wiley & Sons
Canada, Ltd. The purchaser may make back-up copies for his or
her own use only and not for distribution or resale. The author
and the publisher assume no responsibility for errors, omissions,
or damages caused by the use of these files or programs or from
the use of the information contained herein.

Interest Rates
6 - 73

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INTRODUCTION TO

Ken Hartviksen and Robert Ironside

The basic features of different types of bonds

CHAPTER 6 Bond Valuation and

Important Chapter Terms

CHAPTER 6 Bond Valuation and

Important Chapter Terms

CHAPTER 6 Bond Valuation and

The Basic Structure of Bonds

Less than one year Bills or Paper

The Basic Structure of Bonds

A fixed maturity date

CHAPTER 6 Bond Valuation and

The Basic Structure of Bonds

Bond indenture - the contract between the

CHAPTER 6 Bond Valuation and

The Basic Structure of Bonds

I = interest payments, and F = principal repayment

CHAPTER 6 Bond Valuation and

Cash Flow Pattern of a Bond

The Purchase Price or Market Price of a bond is simply the present

The Basic Structure of Bonds

Details regarding payment terms

CHAPTER 6 Bond Valuation and

The Basic Structure of Bonds

Security and Protective Provisions

CHAPTER 6 Bond Valuation and

Security and Protective Provisions

Negative covenants things the firm agrees not to

CHAPTER 6 Bond Valuation and

More Bond Features

CHAPTER 6 Bond Valuation and

CHAPTER 6 Bond Valuation and

CHAPTER 6 Bond Valuation and

Bond Valuation: Example

Factors Affecting Bond Prices

When interest rates increase, bond prices fall

Market Yield (%)

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

Coupon < YTM

Market < Face

Coupon > YTM

Market > Face

CHAPTER 6 Bond Valuation and

Bond Valuation: Semi-Annual Coupons

Size of the coupon payment (divide by 2)

Bond Valuation: Semi-Annual Coupons

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

Look at the graph on the next slide. It shows

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

The convexity of the price/YTM graph reveals

CHAPTER 6 Bond Valuation and

Factors Affecting Bond Prices

Interest Rate Risk & Duration

These three factors are all captured in one

CHAPTER 6 Bond Valuation and