BUSI 3410U Lecture Notes - Lecture 2: Promissory Note, Liquidity Premium, Clean Price
Document Summary
Bond: accrued interest: if there are 183 days between interest settlement dates and it is 50 days since the last payment. What is the price that investors pay? (1) clean price=quoted price= (2) accrued interest= (*3. 5%/2)* 50/183=4. 78 (3) price you pay=dirty price=clean price + accrued interest=950+4. 78=954. 78: bond return: each semi-annual coupon is . Liquidity - increased liquidity of bonds results in the demand curve shifting right. Expected profitability of investment opportunities - in an expansion, the supply curve shifts to the right because firms borrow money to finance investments. Or students can use figures, which alone can get full mark: consider a bond with a 7 percent semi-annual coupon and a face value of . Note that yield to maturity is quoted annually. Describe the relation between bond price and yield to maturity. Whe(cid:374) yield to (cid:373)atu(cid:396)ity is a(cid:271)o(cid:448)e the (cid:272)oupo(cid:374) (cid:396)ate, the (cid:271)a(cid:374)d"s (cid:272)u(cid:396)(cid:396)e(cid:374)t p(cid:396)i(cid:272)e is (cid:271)elo(cid:449) its face value.
