10182

# Financial Engineering of a Bond

In business practice, the issuing price, redemption, and coupon of a newly issued bond are fixed with regard to a "similar bond". The aim of the issuing company is to make the newly issued bond equally attractive to investors as the "similar bond". Therefore, using the yield to maturity of the similar bond to discount the proceedings of the newly issued bond should result in a net present value of the newly issued bond of zero. You can use the coupon, issuing price, and redemption to adapt a newly issued bond in such a way that its net present value is zero for a given yield to maturity of a similar bond.

### DETAILS

A companion Demonstration, "Determinants of the NPV of a Bond", illustrates the main characteristics of a to-be-issued bond and how these influence its net present value. As opposed to that, the Demonstration "Financial Engineering of a Bond" can be used to model the process that is followed before actually issuing a bond, i.e. the adjustment of the relevant factors such that the NPV of the to-be-issued bond is zero, given a certain yield to maturity of a similar bond.

### PERMANENT CITATION

 Share: Embed Interactive Demonstration New! Just copy and paste this snippet of JavaScript code into your website or blog to put the live Demonstration on your site. More details » Download Demonstration as CDF » Download Author Code »(preview ») Files require Wolfram CDF Player or Mathematica.

#### Related Topics

 RELATED RESOURCES
 The #1 tool for creating Demonstrations and anything technical. Explore anything with the first computational knowledge engine. The web's most extensive mathematics resource. An app for every course—right in the palm of your hand. Read our views on math,science, and technology. The format that makes Demonstrations (and any information) easy to share and interact with. Programs & resources for educators, schools & students. Join the initiative for modernizing math education. Walk through homework problems one step at a time, with hints to help along the way. Unlimited random practice problems and answers with built-in Step-by-step solutions. Practice online or make a printable study sheet. Knowledge-based programming for everyone.