real interest rate
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the rate of return after adjusting for inflation
zero growth
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, Price0 = D1/R
-if dividends are expected at regular intervals forever, this is a perpetuity
and the present value of expected future dividends can be found using the
perpetuity formula
All else equal the lower the coupon rate the ____ the interest rate risk
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greater
a low coupon rate means greater weight on the face value when
calculating PV
What is a bond
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A long-term debt instrument in which a borrower agrees to make payments
of principal and interest, on specific dates, to the holders of the bond.
(debt contract)
Taxability premium
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...for taking an unfavorable tax position
"I could have put this money in a tax protected IRA or lent it to a
, municipality, instead I'm lending it to you and will have to pay taxes on my
income, so I want a better price"
brokers
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bring buyers and sellers together(real estate agent)
Factors affecting bond yields:
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Real rate of interest, interest rate risk premium, expected future inflation
premium, default risk premium, taxability premium, liquidity premium.
Bid ask spreads
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the difference between the bid price and the ask price
Nominal Rate
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Give this one a try later!
the rate of return after adjusting for inflation
zero growth
Give this one a try later!
, Price0 = D1/R
-if dividends are expected at regular intervals forever, this is a perpetuity
and the present value of expected future dividends can be found using the
perpetuity formula
All else equal the lower the coupon rate the ____ the interest rate risk
Give this one a try later!
greater
a low coupon rate means greater weight on the face value when
calculating PV
What is a bond
Give this one a try later!
A long-term debt instrument in which a borrower agrees to make payments
of principal and interest, on specific dates, to the holders of the bond.
(debt contract)
Taxability premium
Give this one a try later!
...for taking an unfavorable tax position
"I could have put this money in a tax protected IRA or lent it to a
, municipality, instead I'm lending it to you and will have to pay taxes on my
income, so I want a better price"
brokers
Give this one a try later!
bring buyers and sellers together(real estate agent)
Factors affecting bond yields:
Give this one a try later!
Real rate of interest, interest rate risk premium, expected future inflation
premium, default risk premium, taxability premium, liquidity premium.
Bid ask spreads
Give this one a try later!
the difference between the bid price and the ask price
Nominal Rate
Give this one a try later!
