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Definition:
Loan types:
Pure Discount loan (The borrower receives money today and repays a single lump sum at some time in the future).TVM solver
Treasury Bills (The government borrows money on a shortterm basis by selling Treasury bills, or Tbills and pay a fixed amount at some time). TVM solver
Coupon
=cy=rd then p=100 Coupon<cy<rd then p<100 Discount Coupon>cy>rd then p>100 Premium
Higher price Interest rate:
Longer time, Lower coupon rate
Higher reinvestment rate risk:
Shorter term, higher coupon
Interest rate up, bond price(PV) down
Pmt=annual coupon rate*face value(FV)
Munis tax lower/better than yields on taxable bonds. Yields on TB=Yield*(1tax bracket)
Zero Coupon Bonds:
pay no coupons at all must be offered at a price that is much lower than its stated value
Amortized Loan
(Borrower replays parts of the loan amount over time). TVM solver
Partial amortization:
(borrower makes a payment every month of a fixed amount, and makes a single larger amount called balloon to pay off the loan)
TVM solver: find pmt, then pv
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 Fall '11
 WHITE
 Finance

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