
Coupon
regular interest payments that borrower pays

level coupon bond
constant coupon paid every year.

Face value/Par value
Amount that will be repaid/principal paid at maturity

Coupon rate
annual coupon divided by face value (120/1000=.12)

Coupon payment
stated interest on bond

Maturity
# of years until face value repaid

As interest rates increase, the present values_____
declines (worth less/interest rates increase bond prices decrease)

When interest rates fall, the bond is worth______
More

Yield or Yield to maturity (YTM)
rate required in the market

Current Yield
Annual Coupon/Price

Bond value =
 PV of coupons + PV of par value
 or
 PV of annuity +PV of lump sum

Consider a bond with a coupon rate
of 10% and annual coupons. The par value is $1,000 and the bond has 5 years to
maturity. The yield to maturity is 11%. What is the value of the bond?
N =5; I/Y = 11; PMT = 100; FV = 1,000
CPT PV = 963.04

Discount bond
bond sells for less than face value

§Suppose you are looking at a bond
that has a 10% annual coupon and a face value of $1000. There are 20 years to
maturity and the yield to maturity is 8%. What is the price of this bond?
N =20; I/Y = 8; PMT = 100; FV = 1000

1.If YTM = coupon rate, then par
value =_____
bond price

1.If YTM > coupon rate, then par
value > ______
bond price

If YTM < coupon rate, then par value <______
bond price

Let
the Coupon rate = 14% with semiannual coupons; YTM = 16%; Maturity = 7 years; Par value = $1,000
What is the bond worth now?
1.How many coupon payments are there?
2.What is the semiannual coupon
payment?
3.What is the semiannual yield?
 PMT = 70; N = 14; I/Y = 8; FV =
 1,000; CPT PV = 917.56

