Search results
Results from the WOW.Com Content Network
Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond.As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate.
Analytic Example: Given: 0.5-year spot rate, Z1 = 4%, and 1-year spot rate, Z2 = 4.3% (we can get these rates from T-Bills which are zero-coupon); and the par rate on a 1.5-year semi-annual coupon bond, R3 = 4.5%. We then use these rates to calculate the 1.5 year spot rate. We solve the 1.5 year spot rate, Z3, by the formula below:
The need for day count conventions is a direct consequence of interest-earning investments. Different conventions were developed to address often conflicting requirements, including ease of calculation, constancy of time period (day, month, or year) and the needs of the accounting department.
The rules for calculating the original issue discount utilize a compounding interest formula, with the principal recalculated every six months. Section 1272(a) of the tax code requires that the Original Issue Discount is includible in the lender's taxable income at the end of each tax year, or part of the tax year if the loan was not owned for ...
The fundamental accounting equation, also called the balance sheet equation, is the foundation for the double-entry bookkeeping system and the cornerstone of accounting science. Like any equation, each side will always be equal. In the accounting equation, every transaction will have a debit and credit entry, and the total debits (left side ...
A Credit valuation adjustment (CVA), [a] in financial mathematics, is an "adjustment" to a derivative's price, as charged by a bank to a counterparty to compensate it for taking on the credit risk of that counterparty during the life of the transaction.
Get AOL Mail for FREE! Manage your email like never before with travel, photo & document views. Personalize your inbox with themes & tabs. You've Got Mail!
For some bonds, such as in the case of TIPS, the underlying principal of the bond changes, which results in a higher interest payment when multiplied by the same rate. For example, if the annual coupon of the bond were 5% and the underlying principal of the bond were 100 units, the annual payment would be 5 units.