Chapter 7 Flashcards
1
Q
Yield to Maturity
A
Discount rate that will yield the observed bond rate.
Associated with the riskiness of the bond
2
Q
Coupon Rate =
A
Annual coupon dividend/FV
3
Q
Face Value
A
Principal amount of a bond that’s repaid @ end of term
4
Q
Investment grades
A
BBB or Baa and above
(Anything less are “junk bonds”)
5
Q
Bond pricing
A
Bond (fair) value = PV of coupons + PV of par
Or
= PV of annuity + PV of lump sum
6
Q
Discount Bond
A
Selling price < face value
7
Q
Premium Bond
A
Selling price > Face Value
8
Q
Current Yield
A
Annual coupon amount / Bond price
9
Q
Municipal bonds (munis)
A
Federal tax free
10
Q
(1+R) = (1+r)(1+h)
A
R = Nominal Rate
r = actual (or real) rate
h = inflation rate
11
Q
When to use R = r+h?
A
When the word “approximate” is in the question
