CHAPTER 13
BOND VALUATION
Bonds, particularly those that are traded in liquid secondary markets, are priced according to supply and demand, and their prices can be volatile. The main influence is the general level of interest rates for securities of a similar risk level and length of time to maturity. As a bond approaches its maturity date, its market value grows closer to its nominal value, the amount that will be paid at maturity. This is known as the pull to par, pull to maturity or pull to redemption.
Irredeemable bonds
Take the case of a €1,000 irredeemable bond with an annual coupon of 8%. This financial asset offers to any potential purchaser a regular and fixed €80 per year in perpetuity (i.e. 8% of the par value of €1,000), but ...
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