文档介绍：Lecture 9:Bond Prices and Yields
Financial Markets, Fall 2011
Prof. Wei Cen
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Bonds are debt. Issuers are borrowers and holders are creditors.
The indenture is the contract between the issuer and the bondholder.
The indenture gives the coupon rate, maturity date, and par value.
Bond Characteristics
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Face or par value is typically $1000; this is the principal repaid at maturity.
The coupon rate determines the interest payment.
Interest is usually paid semiannually.
The coupon rate can be zero.
Interest payments are called “coupon payments”.
Bond Characteristics
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. Treasury Bonds
Bonds and notes may be purchased directly from the Treasury.
Denomination can be as small as $100, but $1,000 is mon.
Bid price of 100:08 means 100 8/32 or $
Note maturity is 1-10 years
Bond maturity is 10-30 years
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Corporate Bonds
Callable bonds can be repurchased before the maturity date.
Convertible bonds can be exchanged for shares of the firm’mon stock.
Puttable bonds give the bondholder the option to retire or extend the bond.
Floating rate bonds have an adjustable coupon rate
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Preferred Stock
Dividends are paid in perpetuity.
Nonpayment of dividends does not mean bankruptcy.
Preferred dividends are paid mon.
No tax break.
Equity
Fixed e
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Innovation in the Bond Market
Inverse Floaters
Asset-Backed Bonds
Catastrophe Bonds
Indexed Bonds
Treasury Inflation Protected Securities (TIPS).
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Table Principal and Interest Payments for a Treasury Inflation Protected Security
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PB = Price of the bond
Ct = interest or coupon payments
T = number of periods to maturity
r = semi-annual discount rate or the semi-annual yield to maturity
Bond Pricing
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Price of a 30 year, 8% coupon bond.
Market rate of interest is 10%.
Example : Bond Pricing