Topic 4 - Bond and Stock Valuation

Question 1

Bond certificate

Answer 1

Contains the terms, amount and date of all payments made.

Question 2

Maturity date

Answer 2

Date of final repayment of the bond.

Question 3

Face value

Answer 3

Known as par value or principal amount.

Equals to the notional amount of bond used to compute interest payments.

Question 4

Coupons

Answer 4

Promised interest payments of a bond and paid periodically till maturity.

Question 5

Coupon rate

Answer 5

Determine amount of each coupon payment of a bond.

Quoted in APR normally.

Question 6

Zero-coupon bond

Answer 6

A bond that only make 1 payment at maturity.

Question 7

Yield to maturity (YTM)

Answer 7

Rate of return of bond that is held to maturity.

Or

Discount rate that sets the present value of the promised bond payments to the current market price.

Question 8

Discount

Answer 8

A price which bonds trade that is less than their face value.

Question 9

Spot interest rates

Answer 9

Default-free, zero-coupon yields.

Question 10

Trade at premium

Answer 10

Price of which coupon bonds trade higher than face value.

Question 11

Common stock

Answer 11

A share of ownership in the corporation which confers rights to any common dividends and rights to vote.