RMSC2001_Tutorial_5.pdf - RMSC2001 Introduction to Risk Management Tutorial 5 Bond Chen Sihan 1 1.1 Bond Basic Concepts Definition 1.1 A bond is a

RMSC2001_Tutorial_5.pdf - RMSC2001 Introduction to Risk...

This preview shows page 1 - 3 out of 6 pages.

RMSC2001 - Introduction to Risk Management Tutorial 5: Bond Chen, Sihan Oct 16, 2019 1 Bond 1.1 Basic Concepts Definition 1.1. A bond is a contract or certificate of debt in which the issuer promises to pay the holder a definite sequence of interest payments for a specified period of time, and to repay the loan at a specified terminal date. Maturity date : the terminal date to repay the loan. Term to maturity : the time between the bond issuing date and maturity date. Face value : the amount of money to repay at maturity date, denoted by F , also called the principal . Coupon : the interest that the bond issuer pays to the holder on its face value at regular time intervals until the maturity date, where the rate is called coupon rate , denoted by r , and the amount of each coupon is therefore rF . Bond Price : the amount of money that the bond holder paid at the beginning for the bond, denoted by P . Remark: A bond can be viewed as a cash flow C (0) , . . . , C ( T ), where the positive integer T is the maturity time and 1 , . . . , T are coupon paying times. The values of the cash flow are: C (0) = - P , C ( t ) = rF for t = 1 , . . . , T - 1 and C ( T ) = rF + F . 1
Image of page 1
1.2 Types of Bond 1.2.1 Zero-Coupon Bond Definition 1.2. Suppose t i < t j are two time points, the discount factor B ( t i , t j ) is defined as the value of a unit cash flow at time t j discounted to time t i . Definition 1.3. A zero-coupon bond is a bond with coupon rate r = 0. The price of a zero-coupon bond with maturity T and face value F at time t, 0 t T , equals to B ( t, T ) F . Usually the prices are stated as F = $100.
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 6 pages?

  • Spring '15

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors