Stripped bond/zero-coupon bond

Canada yield curve

Sinking fund
Call provision
Call premium
Call protected
Bearer form
Retractable bond
Deferred call
Canada plus call
Real rates
Nominal rates
Protective covenant
Registered form
Maturity date
Coupon rate
Interest rate risk premium
Yield to maturity (YTM)
Liquidity premium
Default risk premium
Inflation premium
Dirty price
Clean price
Face value or par value
Term structure of interest rates
Fisher effect
Coupons
Debenture
Note
Indenture

A bond that makes no coupon payments, thus initially priced at a deep discount
A plot of the yields on Government of Canada notes and bonds relative to maturity
Account managed by the bond trustee for early bond redemption
Agreement giving the corporation the option to repurchase the bond at a specified pr
Amount by which the call price exceeds the par value of the bond
Bond during period in which it cannot be redeemed by the issuer
Bond issued without record of the owner's name; payment is made to whoever holds
Bond that may be sold back to the issuer at a prespecified price before maturity
Call provision prohibiting the company from redeeming the bond before a certain dat
Call provision which compensates bond investors for interest differential, making call
Interest rates or rates of return that have been adjusted for inflation
Interest rates or rates of return that have not been adjusted for inflation
Part of the indenture limiting certain transactions that can be taken during the term o
Registrar of company records ownership of each bond; payment is made directly to th
Specified date at which the principal amount of a bond is paid
The annual coupon divided by the face value of a bond
The compensation investors demand for bearing interest rate risk
The market interest rate that equates a bond's present value of interest payments and
The portion of a nominal interest rate or bond yield that represents compensation for
The portion of a nominal interest rate or bond yield that represents compensation for
The portion of a nominal interest rate that represents compensation for expected futu
The price of a bond including accrued interest, also known as the full or invoice price.
The price of a bond net of accrued interest; this is the price that is typically quoted.
The principal amount of a bond that is repaid at the end of the term
The relationship between nominal interest rates on default-free, pure discount securi
The relationship between nominal returns, real returns, and inflation
The stated interest payments made on a bond
Unsecured debt, usually with a maturity of 10 years or more
Unsecured debt, usually with a maturity under 10 years
Written agreement between the corporation and the lender detailing the terms of the

ced at a deep discount

bonds relative to maturity

se the bond at a specified price before maturity

nt is made to whoever holds the bond

d price before maturity
he bond before a certain date
rest differential, making call unattractive for issuer
for inflation
ted for inflation
n be taken during the term of the loan, usually to protect the lender's interest
ayment is made directly to the owner of record

alue of interest payments and principal repayment with its price

represents compensation for lack of liquidity
represents compensation for the possibility of default
mpensation for expected future inflation
n as the full or invoice price. This is the price the buyer actually pays.
ce that is typically quoted.

ult-free, pure discount securities and time to maturity; that is, the pure time value of money
and inflation

der detailing the terms of the debt issue

Velor Inc. has

7.50% coupon bonds on the market that have

8% percent, what would each bond currently sell for?
Note: Please make sure your final answer is accurate to 2 decimal places.
Present value + Annuity present value
= $ 463.19 +
$ 503.26
= $ 966.45
As the bonds make semiannual payments:
Periods until Maturity =
10 X 1 =
YTM =
8.00% / 1 =
Coupon Rate =
7.50% / 1 =

10 years left to maturity. The bonds make

Bond price =

Years =
Annual =
YTM =
Coupon =
Face Val =
C/P =

10 periods
8.00%
7.50%
7.5

Present value of $1,000 face amount is :

Present Value =

$ 1,000.00 /

1+

8.00%

10

$ 463.19

The present value of the coupon stream is :

Annuity present value =

$ 75.00 x[(1-1/1+ 8.00%

10

)/1+

8.00% ]= $ 503.26

maturity. The bonds make

$
$

10
1
8.00%
7.50%
1,000
75.00

1 payments. The face value is

$ 1,000 . If the YTM on these bonds is

Velor Inc. has

15.00% coupon bonds on the market that have
6 years left to maturity. The bonds ma
If the bond currently sells for
$
964 what is its YTM?
Note: Please make sure your final answer is accurate to 2 decimal places and in percentage form. (For example: 34.56%)
Bond yield =

Rate(N,PMT,PV,FV,Type)
=
15.98%

Current =
Face Value =
YTM =
Coupon =
Annual Pay =
Type =

$
964
$ 1,000
6
15.00%
1
0

We've seen that the price of a bond can be written as the sum of its annuity and lump-sum components.
With a $75 coupon for 8 periods and a $1,000 face value, this price is: $777 = $75 (1 - 1/(1+r) 8)/r + $1,000/(1+r)8

o maturity. The bonds make

1 payments. The face value is

or example: 34.56%)
PV =
FV =
N=
PMT =
I=?

ents.
$1,000/(1+r)8

-$ 964.00
$ 1,000.00
6
1000*CR
= $ 150.00

$ 1,000

X-cell Inc. has bonds on the market making

1 payments, with
12 years to maturity, and selling for
The face value is
$
1,000 What must the coupon rate be on X-cell Inc.'s bonds?
Note: Please make sure your final answer is accurate to 2 decimal places and in percentage form. (For example: 34.56%)
Coupon Rate =
=

$136.14 /
13.61%

$ 1,000.00

Current =
Face Value =
YTM =
Bonds yield =
Annual Pay =
Type =

PMT = PMT(Bonds,N,PV,FV,TYPE)
= $136.14

1100
$ 1,000
12
12.00%
1
0

Bond value = [Annuity present value of the coupons] + [Present value of the face amount]
10

$800 = C (1 - 1/1.05 )/0.05 + $1,000/1.05

C=

$800 - $1,000/1.05

10

10

(1 - 1/1.0510)/0.05

Solve the equation, we get C = $24.10. Therefore, the coupon rate = 2.41%

PV =
FV =
N=
PMT =
CR ? =

aturity, and selling for

1,100 At this price, the bonds yield

example: 34.56%)
-$ 1,100.00
$ 1,000.00
12
1000*CR
$136.14 X $ 1,000.00 =

13.61%

12%

Suppose the following bond quote for Star Inc. appears today on a financial web site. If this bond has a face value of $1,000, w
Bonds
Star Inc.

Cur Yld Vol

12.80
16

Close
15

Net Chg
80% -3/5

We can use the following formula to help find our solution:

Current yield =
Coupon
/
Close price
Re-arranging for the closing price:
Close price =
Coupon
/
=
12.8
/
=
0.8
X
=
80%

Current yield
16.00
100%

Volume = # of bonds traded that day

Close = closing price as a percent of face value (160 percent of $1,000)
Net Change = price change (as percent of face value) from the previous day.

a face value of $1,000, what was yesterday's closing price?

The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond
holding period yield (HPY). Using this information, answer the questions below.
Note: Please make sure your answers are accurate to 2 decimal places and for parts (a) and (c) your answers are in percentag
a) Suppose that today you buy a 12 percent coupon bond making annual payment for $938. The bond has 14 years to maturi
What rate of return do you expect to earn on your investment?
Face Value =
Let's denote the rate of return you expect to earn on your investment as R.
Market Price =
Coupon rate =
Rate of return =
Rate(N,PMT,PV,FV,TYPE)
YTM =
=
15.97%
I=?
P/Y =
C/Y =
b) 2 years from now, the YTM on your bonds has declined by 2.80 percent, and you decide to sell. What price will your bond
Bond price =

PV(I,N,PMT,FV,TYPE)
= -$548.99
=
The YTM on the bond at 2 years from now

$548.99
15.97% -

1.20%

c) In part b), what is the holding period yield (HPY) on your investment?
Holding period yield =

Rate(N,PMT,PV,FV,TYPE)
=
19.85%

Since you decide to sell the bond 2 years from now, the face amount should be $1,122.71
Let's denote the HPY on your investment as R.

14.77%

hange. If you actually sell the bond before it matures, your realized return is known as the

(c) your answers are in percentage form. (For example: 34.56%)

The bond has 14 years to maturity.
1000
497
7.50%
20

FV
PV =
PMT =
N
Type =

1
1
o sell. What price will your bond sell for?
Years =
Type =
N=
I=
Percent =
N=
FV =

1000
-497
1000*CR =
20

75

2
0 Beginning
20 2 = 18
14.77%
1.20%
2
$548.99