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Lecture 3

# ECON 310 Lecture 3: Econ310F16 Lecture 3

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Simon Fraser University

Economics

ECON 310

David Cox

Spring

Description

relative price of
a dollar
Today teams of
period
and
t alles rent pered
Cit borrat Z. today and repa
-Zt i dollars nent oeria
interest Ale represents an
inertenparal hela hue vice
Nole
relative price a
dollar next period in
tems of dollars today
resent Value CPV
Somes Pies
Drsaunt ead Value
C PDV)
how much are payments of dollars
odds' worth 7hday
One
enost male.. i
Suppose your gast is in
dollars period Cyear
how much wnuld have to invest Clend)
at infenst to obtain
dollars
next year
Answer
So
lti
relative price of a dollar Today teams of period and t alles rent pered Cit borrat Z. today and repa -Zt i dollars nent oeria interest Ale represents an inertenparal hela hue vice Nole relative price a dollar next period in tems of dollars today resent Value CPV Somes Pies Drsaunt ead Value C PDV) how much are payments of dollars odds' worth 7hday One enost male.. i Suppose your gast is in dollars period Cyear how much wnuld have to invest Clend) at infenst to obtain dollars next year Answer So ltiPV
fV of A2 dallas, o years
naar
assuming a amstaut i
est ra k coup undin
A2.
Citi
le
DO
PV
CA 1, 0816
General
PV of A dollars, it
ears from now
CHE is
Other
ture dollars are be received
PV fV of A2 dallas, o years naar assuming a amstaut i est ra k coup undin A2. Citi le DO PV CA 1, 0816 General PV of A dollars, it ears from now CHE is Other ture dollars are be receivedNole i Above calculahens
assume
gear yb nent.
Suppose D be received
t
Bars
out now.
Interest nies in each of periods
a vert
p of A
se calcalations ass ae
dollar aurouwt He are
known as well as
Take prevailing
What is PV of a
S
of Fame income Ae, fin.
in all
eaves
le PV of each pay
It i
PV
Orr
t 1
Nole i Above calculahens assume gear yb nent. Suppose D be received t Bars out now. Interest nies in each of periods a vert p of A se calcalations ass ae dollar aurouwt He are known as well as Take prevailing What is PV of a S of Fame income Ae, fin. in all eaves le PV of each pay It i PV Orr t 14-7
es of credit ins u ments
Bon
Coupon
Bands are a legt/ con Kyrct that reguire.
issuer Cboriower of curreat funds
atake padments in yu future
bond lender of
cument funds.
A Coupon
bond is characterized by
17s
When issued
Da e.
bond fales he
made,
ised b
will
be made.
a bond issued Today he
ie
ma wily dale of L, 20.30
Time do
Number
ears
remain
naterih dale and plase
Cit) Face Value
or principal
or par value or redempto on value
The
sam ment t
is
Coupon
coupon payments
y Conventi
On
are usually in
auto
computed as
bstd s Face ya lie using
bond (s
coupon una
e Bond's Free Unlue
000
Coupon Cor
Coupon oos x *1,000
4-7 es of credit ins u ments Bon Coupon Bands are a legt/ con Kyrct that reguire. issuer Cboriower of curreat funds atake padments in yu future bond lender of cument funds. A Coupon bond is characterized by 17s When issued Da e. bond fales he made, ised b will be made. a bond issued Today he ie ma wily dale of L, 20.30 Time do Number ears remain naterih dale and plase Cit) Face Value or principal or par value or redempto on value The sam ment t is Coupon coupon payments y Conventi On are usually in auto computed as bstd s Face ya lie using bond (s coupon una e Bond's Free Unlue 000 Coupon Cor Coupon oos x *1,000Example
10 year coupon bond wi
a face.. Va lue of $10,
me of
and a
coupon
0.03
early causon payment paid in each
Coupon
0.03 X 10, ODO
30o
Face 10, ooo paid in
year
a. IS Cou
Bond. Cor 2e/o Gupon Bond)
no coupon payme
Ma kes discount bonds pays only its
ly daé.
ace Value at
le Overnaren
of Quada Sur
bil
hat promises one pay ment
10,000 in
Tf a bond issuer does not make
promised pay went on time an
in
a full autouwt the issuer is in
default
3. Fixed Payment Logn C Full
or tri
orrower of current uds agrees
to repay tle loan by making
Series o
ayme
ie installment and gages.
Example 10 year coupon bond wi a face.. Va lue of $10, me of and a coupon 0.03 early causon payment paid in each Coupon 0.03 X 10, ODO 30o Face 10, ooo paid in year a. IS Cou Bond. Cor 2e/o Gupon Bond) no coupon payme Ma kes discount bonds pays only its ly daé. ace Value at le Overnaren of Quada Sur bil hat promises one pay ment 10,000 in Tf a bond issuer does not make promised pay went on time an in a full autouwt the issuer is in default 3. Fixed Payment Logn C Full or tri orrower of current uds agrees to repay tle loan by making Series o ayme ie installment and gages.Measuring takest rales and
yields
dna's
SSOCI
bond markets dere urine bond
Prices
observe
bond we can
bond
price P and its oromised
payments
If you buy a bond at p toe P
fee bond
o A
are severel measures of a
bonder
which Cou
statistic to su MArarire
a bond is re kern.
Consider a od bond
ro mises Coupoh payments C in
each of n
ods and a
ce
value pay
F in period n
obse/ved price o
Bond
s Yield
CYTM)
most common measure of a
bond is yielol
De hnihon
bond
is defined as
taat Comm stan f
value taat eguales
sent value
UNI
bond
market price of
For bond in our example
sales
value
C
Measuring takest rales and yields dna's SSOCI bond markets dere urine bond Prices observe bond we can bond price P and its oromised payments If you buy a bond at p toe P fee bond o A are severel measures of a bonder which Cou statistic to su MArarire a bond is re kern. Consider a od bond ro mises Coupoh payments C in each of n ods and a ce value pay F in period n obse/ved price o Bond s Yield CYTM) most

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