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Understanding how to value financial securities is essential if managers are to meet the objective of maximizing the value of the firm. If they are to maximize the investors value, they must know what drives the value of an asset. Specifically, they need to understand how bonds and stocks are valued in the marketplace otherwise, they cannot act in the best interest of the firms investors.
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In this chapter, we begin by identifying the different kinds of bonds. We next look at the features or characteristics of most bonds. We then examine the concepts of and procedures for valuing an asset and apply these ideas to valuing bonds.