Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
14 Cards in this Set
- Front
- Back
|
What is a bond? |
-A long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific dates, to the holders of the bond. |
|
|
What are Coupon Rates? |
-Stated interest rate |
|
|
What are Coupon Payments? |
-(Coupon rate*Face value) |
|
|
What is Yield to Maturity (YTM)? |
-Rate of return earned on a bond held until maturity |
|
|
What is a Call Provision? |
-Allows the issuer call back outstanding bonds prior to maturity |
|
|
What is Par Value? |
-Maturity value (Face Value) of a bond. ($1,000 for corporate bond) |
|
|
What is a Maturity Date? |
-Years until the bond must be repaid |
|
|
What is rd? |
-Market rate of interest (the discount rate) |
|
|
What is r? |
=real interest rate (r*) + Inflation premium (IP) + Maturity premium (MRP) +Default risk premium (DRP) + Liquidity premium (LP) |
|
|
When coupon rate = rd Bond value = Par Value |
-Sell at Par |
|
|
When coupon rate < rd Bond value < Par Value |
-Sell at Discount |
|
|
Whencoupon rate > rd Bond value > Par Value |
-Sell at Premium |
|
|
What is the relation between rd and bond value? |
-rd and bond value are inversely related: rd goes up bondvalue goes down, and vice versa
-Interestrate risk is positively related to maturity of bond |
|
|
What is Yield-to-maturity? |
-Yield-to-maturity is the rate implied bythe current bond price -It is the interest rate that equates theprice of a bond and the present value of the cash flows -The rate of return you receive if you buyand hold a bond up to maturity |
