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ch. 7 notes - paid for the bond because interest rates are...

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Chapter 7 Notes Bonds and their Valuation 1. 2 types of Bonds a. Government bonds i. No default risk, no interest risk, no liquidity premium risk b. Corporate bonds 2. What is a Bond? a. Evidence of a debt obligation that is owed to you by a company b. An investment in an asset that gives returns or interest c. Is a liability for the issuing company, also is an expense 3. Yield to Maturity ( YTM ) a. If the bond promises 8% in twenty years then in twenty years that is your YTM 4. Risk in buying a bond a. If you need to sell before it matures there is no guarantee that you will get what you
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Unformatted text preview: paid for the bond because interest rates are changing all day. 5. Everything is fixed except the price of the bond a. Premium – price more than you paid b. Loss – selling bond for less than you paid 6. Sinking Funds a. For companies that don’t have the strongest history or financial credit must provide more security to the lender in order to sell bonds or else investors will want a higher return because risk is higher....
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