Chapter 6: Valuing Bonds Flashcards
bond
security that obligates the issuer to make specified payments to the bondholder
coupon
the interest payment paid to the bondholder
face value
payment at the maturity of the bond (also called par value or maturity value)
coupon rate
annual interest payment as a percentage of face value
accrued interest
coupon interest earned from the last coupon payment to the purchase date of the bond
clean bond price
bond price excluding accrued interest
dirty bond price
bond price including accrued interest
current yield
annual coupon payment divided by current bond price
premium bond
bond that sells for more than its face value
discount bond
bond that sells for less than its face value
yield to maturity
interest rate for which the present value of the bond’s payments equals the price
rate of return
total income per period per dollar invested
yield curve/term structure of interest rates
graph of the relationship between time to maturity and yield to maturity, for bonds that differ only in their maturity dates
real return bond (RRB)
bond with variable nominal coupon payments, determined by a fixed real coupon payment and the inflation rate
Fisher effect
the nominal interest rate is determined by the real interest rate and the expected rate of inflation
