FINA 365 Final Exam Review

FINA 365 Final Exam Bond Valuation (5.3 and 6) Bond Terminology  Par Value (Face Value)- The fixed principal amount that the bond issuer promises to repay at maturity  Maturity Date- The da te on which the issuer repays the bond’s par value  Term to Maturity- The number of periods remaining until the bond maturity date  Coupon- The fixed dollar or percentage interest payment that the bond issuer promises to pay each period Types of Bonds  By Issuer: o Treasury securities o Municipal bonds o Corporate debt instruments  By Term to Maturity: o Less than 1 year: Money market Instruments  Treasury bills (government debt)  Commercial paper (corporate debt) o 1 to 10 years: Notes o Greater than 10 years: Bonds  By Security Features: o Collateral trust bonds are secured by some property or other assets o Debenture bonds are not secured by any specific collateral o Subordinated in the priority of claim on the issuer’s assets in case of default Zero-Coupon (Discount) Bonds Consols and Preferred Stocks  Consol is a bond with no final maturity date, and thus perpetual coupon payments o English Consols issued by Bank of England in the 18th century still trade o U.S. government once sold consols to finance the Panama Canal project.