ECON 0110 Lecture Notes - Lecture 5: United States Treasury Security, Federal Reserve System, Nominal Interest Rate
Document Summary
Legal contract specifying the terms of a loan between a borrower and a lender. Example: suppose pitt needs to borrow million to build some new dormitories. Pitt would promise to pay the lenders a specified amount of interest on specified dates and would promise to repay the principal on a specified date (the date of maturity ). Thus, the bond is an iou issued by pitt indicating that pitt borrowed money from various lenders and owes the lenders their money back in the future. Amount that a borrower will repay to the lender on the date of maturity: (par value or principal: when the principal will be repaid (time to maturity or date of maturity) Interest rate (or amount of interest) that will be paid on the par value: date when each interest payment will be made. Ford issues a bond with par value of million for 30 years at 4% annual interest.
