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Financial Mathematics - Calculation of YTM
What is debt and what does a debt-holder receive instead of ownership?
Sum owed by borrower to lender. Debt-holder becomes creditor; receives guaranteed coupon + redemption payments.
Define bond valuation using the intrinsic value approach.
Present value of all future cash flows (periodic coupons + terminal redemption) discounted at required rate of return.
What three adjustments are needed for semi-annual coupon bond valuation?
Halve annual coupon to I/2; halve required rate to k_d/2; double years to 2n periods.
Distinguish Current Yield from Rate of Return.
CY: coupon only at current price, ignores capital gain/loss. ROR: includes coupon + capital gain/loss during holding period.
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