Notes From Right Before the Midterm

Fin6600.91 Midterm Format

I. ch 1-2
II. ch 12 - 13
III. WSJ articles
IV. ch 3
V. ch 23
Vi. Mergent Online data manipulation

Each roman numeral is worth 20 points & the total exam is worth 120 points

bonds = leverage

C= periodic coupon in $
F = Face Value in $
k = (mkt) discount rate

when the discout rate = coupon rate the bond costs face value

you have to read the indenture to find out if a bond is callable

typically a bond can be called at a fixed price which is ussually face+1year interest periond and there is often a "black-out" period (typically 5 years) when the bond can not be called

In order to repurchase stock without underwriting you must have Free Cash Flow FCF

Price and return move in inverse directions

Higher return = lower price

Learn to deal with sinking fund

high yield (below bbb)

dont forget to take into consideration the flotation costs

An 8% coupon, 30-yr annual coun bond is issued w/ 2% floatation cost. It's also issued at a discount at $980. Find the cost of the bond to the firm/issuer in %.

n=30,
i/y=? 8.3677
PV = -960
PMT = 80
FV = 1000

What is the YTM for the bond buyer?
n= 30
pv = -980
PMT = 80
FV = 1k
cpt i/y = 8.18

rate of return went up