Management and Organizational Studies 2310A/B Chapter Notes - Chapter 7: Cash Flow, Zero-Coupon Bond, Premium Bond

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

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 or selling debt securities that are generically called bonds. A bond is normally an interest only loan, meaning borrower pays 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 the in the example. Level coupon bond = constant and paid every year. Face value or par value = the principal amount of a bond that is repaid at the end of the term. A bond that sells for its par value is called a par bond. Government of canada and provincial bonds frequently have much larger face or par values. Coupon rate = the annual coupon divided by the face value of a bond. /1000 = 12% coupon rate for example.