Coupon Bond - is used to compare dollars amounts...

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Coupon Bond A coupon bond gives the lender periodic interest payments plus final repayment of the face value at maturity. A coupon bond specifies the maturity date, face value, issuer, and coupon rate (the coupon payment divided by the face value). E.g., a $1000, 2 year bond with a 10% coupon rate Fixed Payment Loan Under a fixed payment loan the borrower makes periodic payments on both interest and principal. There is no lump-sum payment of principal at maturity. Present Value We want to compare the rates of return for the four types of investments. The rate of return just equals the annual percentage return. The problem is that they make payments to lenders in different amounts at different times and dollars received in the future are not as valuable as today's dollars. The concept of present value
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Unformatted text preview: is used to compare dollars amounts received/spent at different points in time. Present value is the value today of some amount to be received in the future. If I put $100 in the bank and receive 5% interest, I will have $105 in 1 year. So, the present value of $105 to be received in 1 year is $100. $100 now is the same as getting $105 1 year from now because $100 will grow into $105 in a year. present value $1 of $1 to = ------------- be received n in n years (1 + i) where i = interest rate For example, the present value of $100 to be received next year (with i = 5%) equals ($100)/(1 + 0.05) = ($100)/(1.05) = $95....
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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Coupon Bond - is used to compare dollars amounts...

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