Ch-01 - Fixed Income Securities and Markets Chapter 1 Bond...

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1 Fixed Income Securities and Markets Chapter 1 Bond Prices, Discount Factors, and Arbitrage Overview ± Bond Prices ± Discount Factors ± Arbitrage Bond Basics Coupons (annual, semiannual, …) Face Value, Par Value Zero-Coupon Bond Maturity Coupon Rate = Annual Coupon / Face Value
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2 Example ± A treasury bond with a $10,000 face value, a coupon rate of 5.25% and a maturity date of Aug. 15, 2003. ± Annual coupon payment is $10,000 X 5.25% = $525 ± $525 / 2 = $262.50 ± An actual coupon payment of $262.50 every six months T+1 settle ± Delivery or settlement one day after a transaction. ± Treasury bonds have T+1 settle. ± Most spot foreign exchange transactions have T+2 settle.
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3 ± Numbers after the hyphens denote 32nds, often called ticks. "+" half tick. ± (101+12.75/32)%=101.3984% Discount Factors ± The discount factor for a particular term gives the value today (present value) of one unit of currency to be received at the end of that term. ± The discount factor for t years is
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Ch-01 - Fixed Income Securities and Markets Chapter 1 Bond...

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