FIN 3309 exam 4

bonds are

• debt

• a company is taking out a loan

• typically interest-only loans → only interest is paid until the end and then the full loan is paid back

which is bigger the stock market or bond market?

• bond market

bond price

• how much you pay for the bond

• simply the PV of the future cash flows

coupons or coupon payments

• interest payments

• determined by the coupon RATE

• coupon rate x bond’s par value then divide by 2

• PMT

• paid twice a year on standard bonds

par value

• also called face value

• amount the company agrees to pay back at the end of the loan

• FV

maturity or term to maturity

• length the bond is outstanding

• N

yield to maturity

• way to express the return on a bond

• essentially the bond’s IRR (discount rate that causes the PV of the future cash flows to equal the original price)

• I/y

• borrower wants a low yield, lender wants a high yield