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Valuation of bond doubt
Maths & Stats
Sir in the example 40 of icai module (video no) 1)What is the difference between nominal interest rate and rate of return?(i am little clear regarding the difference but i would be more clear if u define them once) 2)Why do we calculate present value based on the rate of return expected by the investor and not by actual market rate of return?(if we calculate present value based on the rate of return expected by the investor,and if the market rate of return is less than what is expected it may also result in loss) Please solve my queries sir...
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Thread Starter
Santosh pal(Video no 20*)( i forgot to mention it)
Everything that is valued today is based on interest rates prevailing today or today's expectations of future interest rates - past rates have no bearing in the valuation. However if a bond is issued in past with a fixed coupon rate, the interest that is received today will be based on that past coupon rate. ICAI framed the question rather poorly - they could have just said Coupon rate is 10%, Current market rate is 14% what is the price of the bond if redemption is at par - that is how you are taught in the final and real world.
