🙋 Student Q&A (Lecture 9)
Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to robmgmte2700@gmail.com. PS1Q2=“Question 2 of Problem Set 1”
📅 Questions covered Saturday, Apr 11
Section titled “📅 Questions covered , Apr 11”🕣 12:50pm
❔ PS7Q7 Interpretation: Can we assume a face value of $100?
✔ For many bond calculations, you do not need to know the actual face value as long as you know the price and some other numbers as a percentage of the face value. That is why we often quote bond prices as a percentage of the face value, and that is what is happening in this problem.
Let me switch over to it. The bond has been issued. You know the maturity and the coupon rate as a percentage of the face value. It pays 5.7% of the face value every year, annually, and can be called at par (at face value) in one year or any time after. It is being sold at a price that you can think of as 101.67% of face value.
Practically, if you were looking at $10,000 face value, the price would be $10,166.70 (101.67% of $10,000). You can also think of it as $100 face value, and the price would be 101.67 cents. You will get the exact same yield to maturity, yield to call, and yield to worst either way.
If that still feels a little uncomfortable, you are more than welcome to treat this question as having a face value of $100, and you are good to go. I think that answers the question. I am getting good positive feedback from the person who asked the question, and we will resume. I did not share my screen, but I think people followed along. I will show you the details so you can see if anyone is doubting. If you are all set, you are all set, good to go.
📅 Questions covered Monday, Apr 13
Section titled “📅 Questions covered , Apr 13”🕣
❔ Excel is amazing!! Can we do some practice?
✔ Absolutely!
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