Determinants of the NPV of a Bond
Determinants of the NPV of a Bond
A company may, before issuing a bond, wonder which conditions this bond has to feature in order to be attractive for investors. In practice, this is done by comparing the "own bond" to be created to a "similar bond" that is traded in the market. The characteristics (price, redemption, and coupon) of this similar bond influence the yield to maturity of the similar bond, which is in turn used to discount the proceeds an investor may have from the own bond. By analyzing different situations, you can learn how different constellations of characteristics of the similar bond affect the net present value of the own bond.