This preview shows page 1. Sign up to view the full content.
We use the saving investment identity to analyze the effects of
changes in government purchases
Bonds
Coupon bonds
Treasury Coupon Bonds (Risk Free)
Definition
A coupon bond is a financial instrument with a fixed term to maturity (Denoted as n
years) It pays a “balloon” payment of $ M on maturity at t=n. M is known as the
“principal” or as “maturity value”, or as “par value”, or as “face value” of the bond.
This is the end of the preview. Sign up
to
access the rest of the document.
Unformatted text preview: The bond also pays a fixed periodic payment of $C. C is known as the coupon. In the US, coupons on treasuries are paid every 6 months. In class, for simplicity, we assume that coupons are paid annually. The CF s (Cash flow) of a coupon bond are:...
View
Full
Document
This note was uploaded on 07/27/2011 for the course BUS 106 taught by Professor Li,c. during the Winter '08 term at UC Riverside.
 Winter '08
 LI,C.

Click to edit the document details