Chapter 7 Flashcards
how do bond values relate to changes in interest rates?
when the market interest rate ↑
Bond prices ↓
difference between coupon rate, yield to maturity, & yield to call
coupon rate - determined by interest payments
yield to maturity - based on price paid
yield to call - first possible call date
Coupon Rate Definition
(May or may not be the market rate)
% multiplied by the PAR/FACE value to determine interest payments
Face value/ Par value Definition
How much money will be repaid as principle to maturity
Coupon Payment Definition
The specified number of dollars of interest paid
each year.
Indenture Definition
A formal agreement between the issuer and
the bondholders.
Debenture Definition
A long-term bond that is not secured by a mortgage on specific property.
plain vanilla means
pays a fixed
dividend in perpetuity
Call Premium
when in a “call option” gives the right to call/redeem before maturity, this involves the issuer having to pay a premium (“Call Premium”)
