Chapter 7 -Intrest Rates and Bonds Flashcards
Coupon
Stated interest payment made on a bond
Level coupon bond
constant and paid every year
face or par value
amount paid at end of loan
coupon rate
annual coupon/face value
time to maturity
of years until it is paid
Interest rate
when rates rise- pv of bonds remaining cash flow declines
when rates fall- bond is worth more
Yield to Maturity or yield
rate required in market on bond
discounted bond
less than face value
Interest rate risk
time to maturity and coupon rate -two factors
higher coupon has larger cash flow earlier so less sensitive
longer the time greater risk
price of bond
annuity sum + lump sum
current yield
bonds annual coupon/price- %
doesn’t consider built-in gain from the price discount
interest rate affects
market value
debt securities
note debentures bonds
indenture or deed of trust
written agreement between corp and lender detailing the terms of debt issue
items in indenture
term total amount description of prop used as security repayment arrangements call provisions details of protective covenants
