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Key MBA Models by Dr. Julian Birkinshaw, Ken Mark

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Bond valuation

A bond is a debt-based investment where an investor loans money to a company or government, and receives a fixed interest rate for a fixed period of time in return. Bonds can then be traded, and bond valuation is a method for determining their price.

When to use it

  • To determine the price you should buy or sell a bond for, as an investor.
  • To evaluate the merits of raising money through a bond issue.

Origins

The idea of raising money from investors by issuing bonds dates back at least to the twelfth century and the republic of Venice. Early trading companies (such as the Dutch East India Company) were active issuers of bonds. National governments also began to raise money through bond issues from the sixteenth century onwards. ...

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