BMGT343 - Chapter 10: Bond Prices and Yield

bond

security that obligates issuer to make payments on specified dates to holder over time; it’s a loan

face value or par value

payment to bondholder at maturity of bond

coupon rate

bond’s annual interest payment per dollar of par value

zero-coupon bond (pure discount bond)

pays no coupons, sells at a discount, provides only payment of par value at maturity

corporate bonds

some corporate bonds have “call” provision

-holder may choose to exchange for par value and reinvest at current market rates

callable bonds

may be repurchased by issuer at specific call price during call period

valuable to issuer

usually pays higher coupon that is a (non-callable) bond

convertible bonds

allow bondholder to exchange bond for shares of common stock at a conversion ratio

-issued with lower coupon bc of potential equity appreciation opportunity