Management and Organizational Studies 2310A/B Chapter Notes - Chapter 7: Nominal Interest Rate, Debenture, Bond Fund

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nick Khanert

Document Summary

Bonds are typically interest-only bonds, borrower pays interest ever period, principal repaid at the end. Coupon: stated interest rate made on a bond: constant, paid every year. Face or par value: principal amount of a bond that is repaid at the end of the term. Coupon rate: annual coupon payment divided by the face value of the bond. Maturity date: specified date at which the principal amount of a bond is paid. Coupon rate and maturity do not change as the market changes: as interest rates rise, the pv of the bond"s remaining cash flow decreases, the bond is worth less. Discount bond, sells for less than face value: as interest rates fall, the pc of the bond"s remaining cash flow increases, the bond is worth more. Premium bond, sells for more than face value. Yield to maturity (ytm) or yield: market interest rate that equates a bond"s present value of interest payments and principal repayments with its price.