ADMS 3530 Lecture Notes - Secondary Market, Opportunity Cost, Accrued Interest

• School: York University
• Department: Administrative Studies
• Course: ADMS 3530
• Professor: all

Document Summary

A loan to the government (trade over the counter) Bonds pay a fixed, scheduled interest coupon payment (semi-annually) Primary market: underwriters (investment banks) buy the bonds up front giving the needed cash/capital to the corporation. Secondary market: bonds are not exchange traded, they trade otc. Brokers communicate electronically to match buyers with sellers. Bond prices are quoted as a % of par/face/principal value. Term/maturity date, the different liquidities, longer the term=higher the coupon rate (inflation premium , credit risk of issuer. Mortgage bonds: capital is channelled to homeowners. These bonds have value when people pay their monthly mortgage payments. Municipal bonds: local governments raise capital for local projects; often interest earned is tax-exempt. Principal value details and attributes of the bond, maturity date, etc. If interest rates fall substantially, corporations & government can issue new bonds with a lower coupon rate.