MAF101 Lecture Notes - Lecture 5: Zero-Coupon Bond, United States Treasury Security, Interest
15 Aug 2018
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Financial assets are priced/valued by discounting all expected future cash flows. Market price should be summation of present values of all future values, given appropriate discount (interest) rate. Loans from banks and financial institutions indirect. Debt is the temporary contribution of capital by investors for a specified times, involving a contract whereby a borrower promises to pay future cash flows to lender. Interest or coupon paid in front of dividends on capital. Debt face value paid on maturity before dividends of capital. Mature in less than a year and usually has ,000 face value or multiple. Short term: no longer than one year, therefore we apply simple interest v the market price of short-term debt security is effectively the present value of its face value paid at maturity with simple interest assumption. The treasury notes is mature in 90 days. Maturity is beyond one year with promised payments.
