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14 Cards in this Set
- Front
- Back
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Coupon |
stated interst payment made on bond |
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face value |
principal amt of bond that is repaid at end of term also called par value
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coupon rate |
annual coupon divided by face value of bond |
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yield to maturity |
rate required in the market of a bond |
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bond valuation |
pv of face value + pv of annuity C{1-(1/1+r)^t} +F/ 1+r^t face value paid at maturity =f coupon of C paid per period a yielf of r per period |
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effective yield on bond |
e.g 8% =(1.08)^2 -1 =16.64% |
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interest rate risk influenced by |
time to maturity coupon rate |
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time to maturity |
longer =more risk |
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coupon rate |
lower coupon rate =greater int rate risk
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YTM when given coupon +maturity rate |
educated guess
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real rate |
int rate adjusted for inflation % change in purchasing power
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Fischer effect |
r/ship between non-returns , real returns +inflation 1+R= (1+r) +(1+h) R= nominal rate r = real rate h= inflation |
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inflation premium |
portion of nominal int rate that represents compensation for expected future inflation |
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interest rate risk premium |
compensation investors demand for bearing interest rate risk
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