COMM 298 Lecture 11: 11.pdf
Document Summary
Bsl: bond terminology (cid:75) face value f: 14664$ amount that bondholder gets at maturity of the bond. When coupons are paid semi-annually, payments are equal to (cid:75) yield to maturity or bond-equivalent-yield: interest rate that equates present value of bond"s cash flows to its price. Also equal to market interest rate used to discount a bond"s cash flows to compute bond"s price. For bonds with semi- annual coupon payments, ytm = 2*rsem (while ear=(1+rsemi)2 1). (cid:75) current yield: annual coupon payment divided by the current price. Recap: bonds (cid:75) last class we introduced bonds. (cid:75) bonds that make regular (often semi-annual) interest payments are called coupon bonds. The coupon rate determines the annual coupon payment. We saw that when the coupon rate of a bond is equal to the yield-to- maturity, the price of the bond will be equal to face value. When the yield-to-maturity is below the bond"s coupon rate, the bond"s price is above par value.
