170W17notes10.pdf - MA170 Lab Notes Text References 6.4 6.6...

This preview shows page 1 - 2 out of 4 pages.

MA170 Lab Notes Text References: 6.4 - 6.6 Types of Bonds (6.2 - 6.4) 1. Bond redeemable at par: A bond for which the redemption value C is the same as the value F (common). If not specified, assume that a bond is redeemed at par. 2. Bond purchased at a premium: A bond for which P > C . The premium is P - C. 3. Bond purchased at a discount: A bond for which P < C. The discount is C - P. 4. Non-Callable bond: A bond for which the maturity date is fixed and cannot be cashed in early. 5. Callable bond: A bond that allows the issuer to pay o the loan (or its fraction) at any of a set of designated call dates. A callable bond is said to have a European option if it has a single call date prior to maturity and an American option if its callable at any date following the lockout period (period before the first call date). 6. Zero coupon bond: A bond that does not pay any interest and promises only a single payment at a fixed maturity date. 7. Coupon bond: A coupon bond that pays coupon payments Fr at regular intervals and pays the redemption value C at maturity. Callable Bond (6.4) A bond that allows the issuer to pay o the loan or some fraction at any of a set of designated call dates. If interest rates decline, a bond issuer would call a bond early, pay o the old issue and replace it with a new series of bonds with lower coupon rate. To calculate the price of a callable bond, the investor must determine a price that will guarantee the desired yield regardless of the call date. For a bond that is callable at par: 1. If the yield rate i

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture