B D E F G 10 N Callable Bond Valuation Bond Issuer: ABC Corp Assumptions Bid Offer Current Market Price 89 90 Bid Offer prices are quoted as a percentage of par Par or Face Value $1,000 Call Premium $20 Call Price $1,020 Years to Maturity Years to Call 10 2 Coupon Rate Payments/Year 2.00% 2 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 2 Year UST Yield 10 Year UST Yield Issuer's Risk Spread (to Call) Issuer's Risk Spread (to Maturity) 0.40% 1.50% 3.00% Based on your credit analysis of ABC Corp 3.50% these are the spreads you require to buy this bond Market YTC = Market YTM Yields based on the current market price of ABC Corp Bond Intrinsic Value to Call Intrinsic Value to Maturity = Your valuation of ABC Corp Bond based on your Risk Spreads As an Investor (eg Insurance Company or Bond Fund) Buy or Don't Buy? Why? (Compare bond's market yields to RRR and bond Intrinsic values to Market values)