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3.1 Introduction

Understanding how to value fixed-income securities is important to investors, issuers, and financial analysts. Bond pricing is an application of discounted cash flow analysis – Bond price should be equal to the value of all discounted future cash flows. The market discount rate is used to obtain the present value – The market discount rate is the rate of return required by investors given the risk of the investment in the bond. The market discount rate is also called the "required yield" or "required rate of return."

Lesson Wrap-Up

This lesson should leave you able to explain the introduction in a fixed-income context and connect it to the decisions made by issuers, investors, or analysts.

Review Prompts

  1. Explain introduction in your own words.
  2. State one exam-style risk, valuation, or market implication of the introduction.