chapter 6 Flashcards
what is the maturity date?
the date that the final payment of face value will be payed out
what is the term of a bond?
the amount of time remaining before bonds maturity date
what are coupons?
the promised interest payments that are paid periodically until the maturity date of the bond
what is the face value of a bond?
the value that is used to calculate coupon payments and is usually paid out at the maturity date
what is the common face value we use in this class?
1000 dollars
what is the coupon rate of a bond?
the rate is used to determine the coupon payments of the bond
how do you figure out the coupon payments of a bond?
the coupon rate times the face value of the bond
if the bond pays its coupons semi-annually, how would you find the coupon?
the coupon rate times the face value of the bond divided by 2
what are zero-coupon bonds?
a bond that does not make coupon payments and the only payment is the face value of the bond received at maturity
what prices to zero-coupon bonds trade at?
they always trade less than their face value
if a zero-coupon bond is risk free, is the yield to maturity of the bond equal to the risk free rate of interest?
yes due to the law of one price
how is YTM normally stated?
as an APR with the same compounding periods with the same compounding intervals as the coupon rate
is there is difference of YTM and the coupon rate?
yes
what are the 3 different kinds of prices that bonds can trade at?
at a discount
at a premium
at par
what does it mean when a bond is trading at a discount?
the price of the bond is lower than its face value
what does it mean when a bond is trading at a premium?
the price of the bond is higher than its face value