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¶ … Bond
In general, the price I would pay for this bond will depend on the risk that the company has. My personal risk preference is that I am risk averse. I expect inflation to continue to be very low over the next year, but increasing slightly from current levels. The prevailing interest rates are low, which means I would expect the corporate bond rates to also be quite low. The company I have selected is Johnson & Johnson, and I do not believe that there is any default risk with this company. They are a large, stable company with a large cash position and stable earnings. They have a wide range of products, meaning they are...
In addition, that company has increased its earnings steadily over the past several years. They compete in a number of different industries as well. Thus, there is little risk that Johnson & Johnson will default on its bond. I see this as a positive, and as a result I am willing to pay less than $1,000 but I would not need to pay significantly less.
I would pay $950 for this bond.
2. The discount rate for this bond can be calculated based on the amount I would pay, the time frame of the bond and the face value.
The basic formula is:
PV = FV / (1 + r) ^ t
If we…
For example, if the Fed sees inflation as a risk going forward, the market will place a weighting on that statement, allocating some form of increased interest rate to the future cash flows. At the time of course, the exact implications of the Fed's comments are unknown. They imply that rates may move in one direction or another, but they are not an actual movement and the Fed reserves the
Obligation Bonds Two types of municipal bonds exist, revenue bonds and general obligation (GO) bonds. General obligation bonds offer investors a relatively safe investment opportunity while providing states and local governments with funds for community improvement. These bonds are debt instruments issued by states and local governments to raise funds for public works. General obligation bonds are backed by the full faith and credit of the issuing municipality. That is,
Inflation and Deflation: The Issue of Price Stability Maintaining relatively stable prices is one of the major concerns in all capitalist economies. History shows us that left to its own devices; the capitalist economies undergo frequent "business cycles" that typically consist of a period of surging economic growth, interrupted by economic crises -- often accompanied by the collapse of the monetary system. Alternate bouts of inflation or deflation can also occur
3. When the expected rate of inflation changes, the expectations for future interest rates also change. An increase in inflation will bring an increase in interest rates, all things being equal. In such a situation, bond prices will go down. If the expected rate of inflation drops, bond prices will increase in anticipation of a potential interest rate cut. The intensity of the price change will depend on the maturity
Finance The WSJ Treasury rate table is as follows. Note that WSJ doesn' t list the 15 and 20-year Treasury rates on its table; Yahoo was used for those instead. Rate This gives the following yield curve: This is a normal yield curve. The yield curve reflects the expectations of future interest rates. At present, the yield curve shows low interest rates in the short-term, then an acceleration of rates in the longer term
Bonds Nora Chavez, the former finance manager for the city of San Antonio, Texas and current Board member to the energy company in San Antonio presented a process for the issuance of general obligation bonds. Her area of expertise was extolled upon the fact that she now is employed by an Investment Banking firm that handles general obligation bonds on a consistent and continuing basis. Chavez, first explained to her audience