Maturity 6 years May 2015 Interest payment dates May 14 Every May 14 the Slovak

Maturity 6 years may 2015 interest payment dates may

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Maturity = 6 years (May 2015) Interest payment dates: May 14 Every May 14, the Slovak Republic pays EUR 43.75 to bondholders, for 6 years. 6
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© EduPristine CFA - Level I (FI) Post your Queries at our Forum Basic Structure Of A Plain Vanilla Bond 7 -150 -100 -50 0 50 100 150 T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10
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© EduPristine CFA - Level I (FI) Post your Queries at our Forum 8
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© EduPristine CFA - Level I (FI) Post your Queries at our Forum Example Zero Coupon Bonds Zero June 1984 PepsiCo Overseas USD bond Amount = USD 100 million. Issue date = June 1981 Maturity = June 1984 (3 years) Face value: F = USD 100 Coupon: C = 0. Issue Price = 67.255. Compounded annual interest yield: (100/67.25) 1/3 - 1 = 14.14% 9
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© EduPristine CFA - Level I (FI) Post your Queries at our Forum Types of Bonds Contd… Based on currency denomination: Dual Currency bond: Coupon payment in one currency and principal payment in another currency Currency option bonds: Combination of single currency bond and a foreign currency option, where bondholders can choose one of two currencies for coupon and principal payment. Domestic bonds: Issued locally by a domestic borrower and is usually denominated in the local currency. Foreign bonds: Issued on a local market by a foreign borrower. Usually denominated in the local currency. Eurobonds: Placed mainly in countries other than the one in whose currency the bond is denominated 10
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© EduPristine CFA - Level I (FI) Post your Queries at our Forum Yield Measures Yield: Return earned on the bond, based on the price paid and the interest payment received Is quoted in basis points (bps). One basis point is equal to one one-hundredth of a percentage point or 0.01%. For example, 8.00% = 800 bps (8.00% / 0/01% = 800 bps). Types of Yield measures: Current (Running) Yield: The annnual interest income from the bond Current Yield = Annual Coupon interest received Bond‘s Market Price Drawbacks : Only Considers coupon interest Capital Gains/Losses not taken into account No consideration for reinvestment income 11
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