Treasury bills ex of pure discount loan
-printable amt. Paid at future date (no periodic interest payments)
Principle pais = total payment- interest paid
ending= beginning balance- principle paid
Amortized loan
Works against you when you pay it
Every payment is interest and principle
ex.)lease on a car
PMT*(t+1)/R=v
Bond terms
Bond
– Debt contract
– Interest-only loan
• Par value (face value) (repaid at maturity)
•Coupon payment
Coupon rate (stated interest rate) Usually YTM=yield to maturaty @ issue (multiply by par value
payment)
YTM changes over life of bond
(The market required rate of return for bonds of
similar risk and maturity
– The discount rate used to value a bond
– Return if bond held to maturity
– Usually = coupon rate at issue
– Quoted as an APR)
If coupon rate=YTM then the bond sells at par value
• Maturity date
• Yield to maturity
Maturity-years until bond has to be paid
Bond Value = PV(coupons) + PV(par)
• Bond Value = PV(annuity) + PV(lump sum
As interest rates increase present values
Decrease (vise versa)
-printable amt. Paid at future date (no periodic interest payments)
Principle pais = total payment- interest paid
ending= beginning balance- principle paid
Amortized loan
Works against you when you pay it
Every payment is interest and principle
ex.)lease on a car
PMT*(t+1)/R=v
Bond terms
Bond
– Debt contract
– Interest-only loan
• Par value (face value) (repaid at maturity)
•Coupon payment
Coupon rate (stated interest rate) Usually YTM=yield to maturaty @ issue (multiply by par value
payment)
YTM changes over life of bond
(The market required rate of return for bonds of
similar risk and maturity
– The discount rate used to value a bond
– Return if bond held to maturity
– Usually = coupon rate at issue
– Quoted as an APR)
If coupon rate=YTM then the bond sells at par value
• Maturity date
• Yield to maturity
Maturity-years until bond has to be paid
Bond Value = PV(coupons) + PV(par)
• Bond Value = PV(annuity) + PV(lump sum
As interest rates increase present values
Decrease (vise versa)
