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ECON 2560 (71)
Chapter 6

Theory of Finance - Chapter 6.docx

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ECON 2560
Nancy Bower

Theory of Finance Bonds Chapter 6 Coupon: The interest payment paid to the bondholder. 184 Face value: Payment at the maturity of the bond. Also called par value or maturity value. 184 Coupon rate: Annual interest payment as a percentage of face value. 184 Accrued interest: Coupon interest earned from the last coupon payment to the purchase date of the bond. 186 Clean bond price: Bond price excluding accrued interest. 186 Dirty bond price: Bond price including accrued interest. 186 Annuity factors: Present value of a $1 received each of t periods, at various interest rates. Discount factor or present value interest factor: Present value of a $1 future payment. Current yield: Annual coupon payment divided by current bond price. 191 Premium bond: Bond that sells for more than its face value. 191 Discount bond: Bond that sells for less than its face value. 191 Yield to maturity: Interest rate for which the present value of the bond's payments equals the price. 191 Interest Rates and Bond Prices (annually) Finding what a bond is going to get you at maturity in total: FOR THE SAME COUPON RATE EACH YEAR AND INTEREST RATE r = di
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