FINA 2700 Chapter Notes - Chapter 6: Accrued Interest, Dirty Price, Clean Price

• School: University of Windsor
• Department: Business
• Course: FINA 2700
• Professor: Ramesh Chandra

Document Summary

Bond security that obligates the issuer to make specified payments to the bondholder. The money governments or companies collect when bonds are issued is the amount of the debt. Coupon rate annual interest payment as a % of face value. Bonds are traded by a network of bond dealers. Accrued interest = coupon payment x (# of days from last coupon to settlement date / # of days in coupon period) Clean price excludes accrued interest, while dirty price includes accrued interest. Current yield = annual coupon payment / current bond price. Pv (bond) = (coupon x annuity factor) + (face value x discount factor) As interest rates rise, bond prices fall. The value of the bond is the present value of the bond"s cash flows. Premium bond bond that sells for more than its face value. Discount bond bond that sells for less than its face value.