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Stripped bond/zero-coupon bond A bond that makes no coupon payments, thus initially priced at a de

Canada yield curve A plot of the yields on Government of Canada notes and bonds relati

Sinking fund Account managed by the bond trustee for early bond redemption

Call provision Agreement giving the corporation the option to repurchase the bond

Call premium Amount by which the call price exceeds the par value of the bond

Call protected Bond during period in which it cannot be redeemed by the issuer

Bearer form Bond issued without record of the owner's name; payment is made tRetractable bond Bond that may be sold back to the issuer at a prespecified price befo

Deferred call Call provision prohibiting the company from redeeming the bond bef

Canada plus call Call provision which compensates bond investors for interest differe

Real rates Interest rates or rates of return that have been adjusted for inflation

Nominal rates Interest rates or rates of return that have not been adjusted for infla

Protective covenant Part of the indenture limiting certain transactions that can be taken

Registered form Registrar of company records ownership of each bond; payment is m

Maturity date Specified date at which the principal amount of a bond is paid

Coupon rate The annual coupon divided by the face value of a bond

Interest rate risk premium The compensation investors demand for bearing interest rate risk

Yield to maturity (YTM) The market interest rate that equates a bond's present value of inter

Liquidity premium The portion of a nominal interest rate or bond yield that represents c

Default risk premium The portion of a nominal interest rate or bond yield that represents c

Inflation premium The portion of a nominal interest rate that represents compensation

Dirty price The price of a bond including accrued interest, also known as the full

Clean price The price of a bond net of accrued interest; this is the price that is ty

Face value or par value The principal amount of a bond that is repaid at the end of the term

Term structure of interest rates The relationship between nominal interest rates on default-free, pur

Fisher effect The relationship between nominal returns, real returns, and inflation

Coupons The stated interest payments made on a bond

Debenture Unsecured debt, usually with a maturity of 10 years or moreNote Unsecured debt, usually with a maturity under 10 years

Indenture Written agreement between the corporation and the lender detailin

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p discount

ve to maturity

at a specified price before maturity

o whoever holds the bondre maturity

ore a certain date

tial, making call unattractive for issuer

ion

uring the term of the loan, usually to protect the lender's interest

ade directly to the owner of record

est payments and principal repayment with its price

ompensation for lack of liquidity

ompensation for the possibility of default

for expected future inflation

or invoice price. This is the price the buyer actually pays.

ically quoted.

e discount securities and time to maturity; that is, the pure time value of money

the terms of the debt issue

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Velor Inc. has 7.50% 10

8%

Bond price =

= 463.19$ + 503.26$

= 966.45$ Years =Annual =

10 X 1 = 10 periods YTM =

YTM = 8.00% / 1 = 8.00% Coupon =

7.50% / 1 = 7.50% 7.5 Face Val =

C/P =

Present Value = 1,000.00$ / 1+ 8.00% 10 = 463.19$

75.00$ x[(1-1/1+10

)/1+ 8.00% ]= 503.26$

coupon bonds on the market that have years left to maturity. The

percent, what would each bond currently sell for?

The present value of the coupon stream is :

Annuity present value = 8.00%

As the bonds make semiannual payments:

Periods until Maturity =

Present value + Annuity present value

Coupon Rate =

Present value of $1,000 face amount is :

^

Note: Please make sure your final answer is accurate to 2 decimal places.

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1 1,000$

101

8.00%

7.50%

1,000$

75.00$

bonds make payments. The face value is . If the YTM on these bonds is

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Velor Inc. has 15.00% 6

964$

Bond yield = Rate(N,PMT,PV,FV,Type) Current = 964$

= 15.98% Face Value = 1,000$

YTM = 6Coupon = 15.00%

Annual Pay = 1

Type = 0

coupon bonds on the market that have years left to maturity.

If the bond currently sells for

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+

We've seen that the price of a bond can be written as the sum of its annuity and lump-sum components.

Note: Please make sure your final answer is accurate to 2 decimal places and in percentage form. (For example:

what is its YTM?

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1 1,000$

PV = 964.00-$

FV = 1,000.00$

N = 6PMT = 1000*CR = 150.00$

I = ?

he bonds make payments. The face value is

r)8

34.56%)

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1 12

1,000$

Coupon Rate = $136.14 / 1,000.00$ Current = 1100 PV =

= 13.61% Face Value = 1,000$ FV =

YTM = 12 N =PMT = Bonds yield = 12.00% PMT =

= $136.14 Annual Pay = 1

Type = 0 CR ? =

X-cell Inc. has bonds on the market making payments, with years to maturity, and

The face value is 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: 3

PMT(Bonds,N,PV,FV,TYPE)

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

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

$800 = C (1 - 1/1.0510

)/0.05 + $1,000/1.0510

$800 - $1,000/1.0510

(1 - 1/1.05

10

)/0.05

C =

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1,100$ 12%

1,100.00-$

1,000.00$

121000*CR

$136.14 X 1,000.00$ = 13.61%

At this price, the bonds yieldselling for

4.56%)

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Cur Yld Vol Close Net Chg

Star Inc. 12.80 16 15 80% -3/5

Current yield = Coupon / Close price

Re-arranging for the closing price:

Close price = Coupon / Current yield

= 12.8 / 16.00

= 0.8 X 100%

= 80%

Suppose the following bond quote for Star Inc. appears today on a financial web site. If this bond has a face value

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

Bonds

Net Change = price change (as percent of face value) from the previous day.

Close = closing price as a percent of face value (160 percent of $1,000)

Volume = # of bonds traded that day

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

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Face Value =

Market Price =Coupon rate =

Rate of return = YTM =

= 15.97%

I = ?

P/Y =

C/Y =

Bond price =

= -$548.99 = $548.99

15.97% - 1.20% = 14.77%

Holding period yield =

= 19.85%

Let's denote the HPY on your investment as R.

The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you

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

Let's denote the rate of return you expect to earn on your investment as R.

b) 2 years from now, the YTM on your bonds has declined by 2.80 percent, and you decide to sell. What

Rate(N,PMT,PV,FV,TYPE)

The YTM on the bond at 2 years from now

PV(I,N,PMT,FV,TYPE)

Since you decide to sell the bond 2 years from now, the face amount should be $1,122.71

Rate(N,PMT,PV,FV,TYPE)

a) Suppose that today you buy a 12 percent coupon bond making annual payment for $938. The bond h

What rate of return do you expect to earn on your investment?

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 ans

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1000 FV 1000

497 PV = -4977.50% PMT = 1000*CR = 75

20 N 20

Type = 0

1

1

Years = 2

Type = 0 Beginning

N = 20 - 2 = 18

I = 14.77%

Percent = 1.20%

N = 2

FV = $548.99

actually sell the bond before it matures, your realized return is known as the

price will your bond sell for?

as 14 years to maturity.

wers are in percentage form. (For example: 34.56%)