This preview shows pages 1–2. Sign up to view the full content.

Answers to End-of-Chapter Questions Q4-2. Define the following terms commonly used in bond valuation: (a) par value , (b) maturity date , (c) coupon , (d) coupon rate , (e) coupon yield , (f) yield to maturity ( YTM ), and (g) yield curve . A4-2 . The par value is the face value of principal amount that a bond repays when it matures. It is usually \$1,000 for corporate bonds. The maturity date indicates when a bond’s final payment is due, and it signals the end of the bond’s life. The coupon is the dollar amount of interest that a bond pays over a year. The coupon rate equals the coupon divided by the par value. The coupon yield equals the coupon dividend by the market price of the bond. The YTM is the discount rate that equates the present value of a bond’s cash flows to its current market price, and it is a measure of the return that investors require on a particular bond. The yield curve is a graph showing how interest rates vary with maturity for a group of bonds having equal risk. Q4-4. What is the difference between a pure discount bond and a bond that trades at a discount?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern