Bonds and yields
- Created by: Shreeya Bhan
- Created on: 10-04-13 12:21
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- bond: represents a loan made by investors to the issuer. Bond value = PV of coupons + PV of par value ;inverse relationship between bond value and YTM
- In return the issuer promises to:
- Regular coupon payments every period until the bond matures
- Coupon rate = Annual coupon payment / Face value
- The face/par/principle/maturity value of the bond when it matures
- Regular coupon payments every period until the bond matures
- The discount rate or interest rate per year = yield to maturity; YTM is the required rate of return for a bond; Y ield to maturity is a measure of the average rate of return that will be earned if the bond is held to maturity
- relationship with coupon rate: YTM = CR: at par; CR>YTM: at premium; CR<YTM: at discount; all three have the same YTM so the same risk level only diff is how they pay back the coupons
- Alternative yields
- Current yield=Coupon/Price
- holding period yield = capital gain + current yield
- In return the issuer promises to:
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