Accountingby david.roderiques.3 Part 3Valuation of SecuritiesChapters in this PartChapter 6Interest Rates and Bond ValuationChapter 7Stock ValuationIntegrative Case 3: Encore International 2012 Pearson Education, Inc. Publishing as Prentice HallChapter 6Interest Rates and Bond ValuationInstructors ResourcesOverviewThis chapter begins with a thorough discussion of interest rates, yield curves, and their relationship to required returns. Features of the major types of bond issues are presented along with their legal issues, risk characteristics, and indenture convents. The chapter then introduces students to the important concept of valuation and demonstrates the impact of cash flows, timing, and risk on value. It explains models for valuing bonds and the calculation of yield-to-maturity using either an approximate yield formula or calculator. Students learn how interest rates may affect their ability to borrow and expand business operations or assets under personal control.Suggested Answers to Opener in Review Questionsa. With short-term interest rates near 0 percent in 2010, suppose the Treasury decided to replace maturing notes and bonds by issuing new Treasury bills, thus shortening the average maturity of U.S. debt outstanding. Discuss the pros and cons of this strategy. The U.S. Treasury would face many of the same considerations as those faced by a company that is considering revision of its average debt maturity. Short- ...
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