08-16-2017, 10:05 PM
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Introduction to Bonds
fixed income security specifies series of future payments
contract specifies timing & amounts of cash flows over time
Timing
- how often the payments are made: coupon payment time
- pre-specified period of time that the loan has to be paid: maturity date
Payments
- coupon payments represent the interest on bonds
- par (face) value is amount paid to bond holder at maturity
securities which establish creditor relationship between purchaser & issuer
issuer
such as corporations, governments and government agencies
receives a certain amount of money in return for the bond
is obligated to repay the principal at maturity to purchaser
corporate bond issued by a corporation
municipal bond issued by municipality
treasury bond issued by government, maturity more than 10 years, 2xin a year coupon payments
treasury notes similar to treasury bond, issued for 1-10 years
treasury bills (zero coupon bonds) held for a shorter time period, matures in 3,6,9 months