RSM230H1 Lecture Notes - Lecture 4: Zero-Coupon Bond, The Purchase Price, Bid Price
26 Nov 2016
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Long term debt you"ll get (cid:271)a(cid:272)k the sa(cid:373)e a(cid:373)ou(cid:374)t of (cid:373)o(cid:374)ey you paid fo(cid:396) at the e(cid:374)d of the pe(cid:396)iod a(cid:374)d you will get interest along the way. Pricing is done the same way as short-term debt. We can break down long-term debt into many short-term debts. Quotes are done different from long-term debt with short-term. A bond is a legal contract of indebtedness. Issuer (borrower) owes principal and interest to the purchaser. Differs from money market contract in its terms to maturity and separate interest payments, called coupons. Large borrowers turn directly to investors (side-steps banks) to get capital. Bond mutual funds (pool of bonds together) Bank is inefficient to do large scale of capital lending. Traded in the over-the-counter (otc) market in large denominations. If traded, trustee (transfer agent) will be responsible for transferring ownership. We collectively own a bond through the actions of financial intermediary (since the cash is from the people)
