FINE 2000 Chapter Notes - Chapter 6: Premium Bond, Real Interest Rate, Current Yield
Document Summary
Bond: security that obligates the issuer to make specified payments to the bondholder. Coupon: the interest payment paid to the bondholder. Coupon rate: annual interest payment as a percentage of face value. Face value: payment at the maturity of the bond. Asked price: what investors need to pay to buy the bond. Bid price: an investor who already owns a bond and wishes to sell it would receive the bid price. Just as the used-car dealer earns a living by reselling cars at higher prices than he paid for them, so the bond dealer needs to charge a spread between the bid and the asked price. Bid yield and ask yield, stand for bid yield to maturity and ask yield to maturity. The ask yield measures the rate of return that investors will receive ift hey buy the bond at the asked price and hold it to maturity.