ECON 2035 Chapter : Ch 4
Document Summary
Outline: types of credit market instruments. Discount bonds: present value, yield to maturity, interest rates versus returns. 4 types of credit market instruments. Credit market instruments (debt instruments) Borrow today and repay principle plus interest in one year: many money market instruments are of this type. Xed regular payments unrl maturity: example: Borrow ,000 today and repay per year for 25 years: auto loans and mortgages are xed- payment loans. 5: coupon bond (cont"d, coupon rate. = coupon payment as a percentage of face value: example: = 0. 1 (or 10%: many corporate bonds and us treasury notes and bonds are of this type. Face value = ,000. 1- year maturity, sold for . The interest payment = (= ,000 : us treasury bills are of this type. Present value (pv: the idea behind the present value: today is di erent from tomorrow: suppose you have today. = . 1 tomorrow: in this sense,
