FIN 300 Chapter Notes - Chapter 7: United States Treasury Security, Nominal Interest Rate, Sinking Fund
Document Summary
When a corporation or government wishes to borrow money from the public on a long-term basis, it usually does so by issuing and selling debt securities that are generically called bonds. A bond is normally an interest-only loan, meaning the borrower pays the interest every period, but none of the principal is repaid until the end of the loan. Coupon: the stated interest payment made on a bond: level coupon bond: when the coupon is constant and paid. Face value (par value): the principal amount of a bond that is repaid at the end of the term. Coupon rate: the annual coupon divided by the face value of a every year bond is paid. Maturity: specified date at which the principal amount of a bond. Yield to maturity (ytm): the market interest rate that equates a bond"s present value of interest payments and principal repayment with its price.