Discussion: Valuing Bonds
For bond investors, it is usually less difficult to value a bond as opposed to a stock. Investors who seek bonds will have a lot of known factors to aid them, such as the coupon rate, maturity date, and credit rating. However, there are certain unknown factors when valuing bonds that can be difficult to predict, such as interest rates and inflation.
In this Discussion, you will select a bond and explain how a feature of that bond is used to determine its value.
To prepare for this Discussion:
Select a type of bond feature, and consider why it is important, as well as whether it adds value to either the investor or the issuer. Also, review the concept of yield-to-maturity and its importance to valuing a bond.
Review the Academic Writing Expectations for 2000/3000-Level Courses, provided in this week’s Learning Resources.
By Day 3
Post a 150- to 225-word (2- to 3-paragraph) explanation of how your selected bond feature is used to determine the value of a bond. In your explanation, include the following:
Describe the bond feature you selected in detail.
Explain how the feature is used to determine bond value, including the importance of yield-to-maturity.
To support your response, be sure to reference at least one properly cited scholarly source.
Required Resources
Debt and Interest Rates
These resources provide information on debt, interest rates, and the concept of yield to maturity. This information is crucial to understanding bonds and how the returns on them are calculated.
Khan, S. (2011b). Corporate debt versus traditional mortgages [Video file]. Retrieved from https://www.youtube.com/watch?v=rD25slnTqAE&t=
Note: The approximate length of this media piece is 5 minutes.
Khan, S. (2013). Relationship between bond prices and interest rates [Video file]. Retrieved from https://www.youtube.com/watch?v=I7FDx4DPapw
Note: The approximate length of this media piece is 13 minutes.
Lumen Learning. (n.d.-w). The basics of interest rates. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/the-basics-of-interest-rates/
Time Estimate: 14 minutes
Lumen Learning. (n.d.-a). Additional detail on interest rates. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/additional-detail-on-interest-rates/
Time Estimate: 14 minutes
Describing Bonds
Through these resources, you will explore bonds, which are financial securities as well as contractual obligations in which investors loan money to a company or government at a fixed or variable interest rate. There are many types of bonds, such as treasury bonds, corporate bonds, municipal bonds, junk bonds, and others. Bonds have many characteristics, which are also described in these resources.
Investopedia. (2013b). Investopedia video: Zero-coupon bond [Video file]. Retrieved from https://www.youtube.com/watch?v=Cu-VFm4Hbns
Note: The approximate length of this media piece is 2 minutes.
Lumen Learning. (n.d.-c). Advantages and disadvantages of bonds. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/advantages-and-disadvantages-of-bonds/
Time Estimate: 9 minutes
Lumen Learning. (n.d.-n). Key characteristics of bonds. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/key-characteristics-of-bonds/
Time Estimate: 22 minutes
Lumen Learning. (n.d.-aa). Types of bonds. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/types-of-bonds/
Time Estimate: 17 minutes
Lumen Learning. (n.d.-cc). Understanding bonds. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/understanding-bonds/
Time Estimate: 16 minutes
Bond Valuation and Risk
What happens when the market interest rates increase or decrease and how do these occurrences impact the value of bonds? Using these resources, you will examine the answers to these questions, as well as bond markets and bond risks.
Lumen Learning. (n.d.-e). Bond markets. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/bond-markets/
Time Estimate: 6 minutes
Lumen Learning. (n.d.-ee). Valuing bonds. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/valuing-bonds/
Time Estimate: 27 minutes
Lumen Learning. (n.d.-f). Bond risk. In Boundless finance. Portland, OR: Author. Retrieved March 19, 2019, from https://courses.lumenlearning.com/boundless-finance/chapter/bond-risk/
Time Estimate: 18 minutes
Pysh, P. (2012). Value a bond and calculate yield to maturity (YTM) [Video file]. Retrieved from https://www.youtube.com/watch?v=pfhjJ00IuW4
Note: The approximate length of this media piece is 16 minutes.
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