BFN 110 Lecture Notes - Lecture 7: Premium Bond, Tunxis Community College, Zero-Coupon Bond
6 Jan 2021
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Document Summary
A bill is a discount security because the price is always less than the face value. The difference between the face value and present value represents the interest amount. Pv = 100,000 / (1+0. 08 x [180/365]) Price of security increases as term to maturity shortens. Same as example 1, sell it 50 days later when the applicable interest rate. Pv = 100,000 / (1+0. 08 x [180-30/365]) The face value, the coupon payment, the market interest rate, the umber of coupon payments to maturity. The coupon payment equals the coupon rate multiplied by the face value. A bond has a face value if 10,000. 3 years to maturity and coupon rate is 7%, coupons paid semi-annually. N = 3 years" x 2 semi annual compounded payments = 6. Coupons are paid half-yearly and a coupon payment was made today. Coupon rate is 5% and market yield is 6% Pmt = fv x coupon rate / semi annual.
