BU283 Chapter Notes - Chapter 7: Effective Interest Rate, Market Maker, Zero-Coupon Bond
Document Summary
Fixed income securities: a class of securities that"s not equity that makes payments to the holder on a fixed schedule (e. g. bonds) Bonds: a debt instrument issued by governments and corporations with a maturity of more than. Coupon bonds: pay periodic (annual or semi-annual) interest payments to holder (coupons) and pay final lump-sum (face value) at maturity. Purchase of bond represents a loan to canadian government. Bond stipulates how and when money will be paid back, and how much interest will be paid. Biggest difference between loan and bond is that lender can get his money back early by selling bond to another investor. With loan, lender has to wait until maturity to get money back. Zero coupon bond: a bond that doesn"t pay coupons. Holder/lender pays a price that"s less than face value, and then receives face value at maturity. Difference between price and face value is interest earned by holder.
