Interest Rates and Bond Valuation
Autor: Nicotar96 • April 5, 2018 • Presentation or Speech • 3,460 Words (14 Pages) • 827 Views
INTEREST RATES & BOND VALUATION
Week 2
1F0120 Corporate Finance I Academic Department of Finance Universidad del Pacífico
M. Gonzalo Chávez, CFA
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Outline
I. The Internal Rate of Return (IRR)
II. Interest Rates Quotes and Loans
III. Determinants of Interest Rates
IV. Bond Prices and Yields
V. Corporate Bonds
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Internal Rate of Return (IRR)
•
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Example
• Suppose that you face an investment opportunity that requires a $1000 investment today and will have a $2000 payoff in six years,
• r = IRR = 12.25%
• Therefore, making this investment is equivalent to earning 12.25% per year on your money for six years
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Solving IRR of a Cash Flow Stream[pic 1][pic 2]
• Consider a stream of cash flow,
• The IRR is calculated by solving the r in the NPV = 0 equation below,
• When N > 2, the r may not be solved manually, we need to use a financial calculator or computer softwares (e.g. Excel).
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Outline
I. The Internal Rate of Return (IRR)
...