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Third lecture
Group A
Bond price: is the price of the bond at the purchasing time.
Bond face value: is the money you will receive at the end of the period.
The bond: is a debt investment in which an investor loans money to an entity. It could be: typically
corporate or governmental. Which borrows the funds for a defined period of time for investors.
The face value: represents the amount that a bond interest holder all receive at maturity date (the
end of the period).
The coupon rate: is the interest rate it pays to the holders each year. It expressed as a percentage
of it face value.
Bond maturity date: is the date on which the holder receives the face value of the bond.
The market price: is what it pays for the bond.
When the face vale > price
1. If the bond is purchased at the face value (face value = price); then the yield to maturity
equal interest rate.
2. If the bond price is purchased at discount (face value > price); then the
yield to maturity = interest rate + capital.
3. If the bond price is purchased at premium (face value < price); then the
yield to maturity = interest rate – capital.
Examples:
1. P = $1000 , C.R = 10% , F.V = $1000
P = F.V; the yield = interest rate (coupon rate) = 10%
