BU283 Chapter Notes - Chapter 7: Normal Distribution, Bond Market, Spot Contract
Document Summary
Fixed income securities: class of securities that is not equity and that makes payments to the holder on a fixed schedule i. e. bonds. Bonds: a debt instrument issued by gov and corporations w maturity of more than 1 year. Traded on the money market : the market for bonds w a maturity less than 1 year: all these bonds are zero coupon bonds i(cid:374)(cid:272)lude (cid:271)a(cid:374)kers" a(cid:272)(cid:272)epta(cid:374)(cid:272)es, (cid:272)o(cid:373)(cid:373)er(cid:272)ial paper, a(cid:374)d go(cid:448). Buyers of money market securities include pension funds and mutual funds. Many corporations, provinces and municiplaities issue zero coupon bonds: ca(cid:374)adia(cid:374) go(cid:448) does(cid:374)"t issue zero (cid:272)oupo(cid:374) (cid:271)o(cid:374)ds (cid:449) (cid:373)aturities greater tha(cid:374) 1 year. Face value of zero coupon bond = the amount of money that the issuer pays the bond holder (owner) at maturity. Difference bw a coupon bond and zero coupon bond: zero coupon bond: pays all of its coupons at maturity. The issuer of a zero coupon bond borrows money.
