Bonds Flashcards
book value
The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation.
amortization of premium
The amount of principal that is repaid when a bond is bought at a premium. AKA writing down a bond.
accumulation of discount
The negative portion of the principal paid when a bond is bought at a discount
redemption value
Redemption value is the price at which the issuing company may choose to repurchase a security before its maturity date.
par value/face value
The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as “par value” or simply “par.”
yield rate
The amount of return an investor will realize on a bond. Though several types of bond yields can be calculated, nominal yield is the most common. This is calculated by dividing amount of interest paid by the face value.
callable/ non - callable
Callable - A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called.
coupon rate
sum of coupons / face value of bond
Basic Price of Bond Formula
((Face Value) * (Coupon Rate) * a n|i) + Face Value * v^n
If Price of Bond > Redemption Value of Bond
Premium
If Price of Bond
Discount
Premium/Discount Formula
Price = C + (Fr - Ci) * an|i
Full or Dirty Price Formula
price including accrued interest (price that is actually paid)
If the price for the period is B, then the price in between coupons is:
B (1 + i) ^ (t) where t is the fraction of the coupon payment that we are looking at
Clean Price
price including accrued interest minus the portion of coupon to next period
If the price for the period is B, then the price in between coupons is:
B (1 + i) ^ (t) - tFr where t = fraction of the coupon payment that we are looking at F = Face value r = coupon rate
Increase in Book Value at time t if the bond is bought at a discount.
(Ci - Fr) * v^n-t+1
