BU283 Lecture Notes - Lecture 5: Spot Contract, Yield Curve, Interest Rate Risk
Document Summary
Fixed income securities part 1- zero coupon bonds. Fixed income securities: a class of securities that pay a fixed income to the holder, the class includes bonds. Bonds: a debt security, like an iou, bond issuers borrow money from bond investors, the issuers agrees to repay the principal amount of the loan on maturity date, a loan from the holder to the issuer. Usually sold at a discount to face value (no coupons: examples: Issued by government of canada with min face value of. Common maturity is 91 days (182 & 364 days) Company issues short-term promise to repay principal. Bank pays holder in event of default by issuer. Issuers are less credit-worthy than issuers of commercial paper. Yield to maturity (or yield: an estimate of the annual return an investor will earn if they buy a bond and hold it to maturity, also known as the return.
