Principles of Managerial Finance, 15th Edition

6.4 Bond Valuation

1. LG5

2. LG6

Customizing the basic valuation equation to value specific securities such as bonds, preferred stock, and common stock is relatively straightforward. We describe bond valuation in this chapter, and we cover the valuation of common stock and preferred stock elsewhere in this text in Chapter 7.

Bond Fundamentals

Bonds are long-term debt instruments used by business and government to raise large sums of money, typically from a diverse group of lenders. Most corporate bonds pay interest semiannually (every 6 months) at a stated coupon rate; have an initial maturity of 10 to 30 years; and have a par value, principal, or face value, of $1,000 that the borrower must repay at maturity.

Example 6.7

On January 1, 2018, Mills ...