FIN 501 Lecture Notes - Lecture 11: Kmt2A, Vestment, Penrod
20 Nov 2014
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Iou that obligates issuer to pay holder of bond. Fixed sum (principal/par value/face value) at maturity w/ constant periodic interest payments (coupons) during life. Discount rate that equates today"s bond price w/ pv of future cf. Bond price = pv (pmt) + pv (fv) ; m = maturity in years ; c = annual. You will receive next pmt + might have to pay taxes on it. You must compensate seller for accrued interest o o. Clean price quoted price ignoring accrued interest. Dirty price what buyer actually pays = clean + accrued. Callable bond gives issuer option to buy back bond at a specified call price anytime after initial call protection period. Call price (cp) price issuer must pay to buy it back. Call protection period period where it can"t be called. Yield to call assumes bond will be called at earliest possible call date. 11. 4 interest rate risk + malkiel"s theorem.
