Term
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Definition
| long-term contract - a loan to a borrower. Issuer/borrower agrees to pay bondholder/creditor interest payments and principal on specific dates in the future. |
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Term
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Definition
| Face value of bond. Printed on the face of the document. Amount repaid at maturity. Typically $1,000. |
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Term
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Definition
| Annual interest rate set at the time of the bond's issue and paid for life of bond. Used to calculate interest payments. Normally = current market rate so bond sells at par. |
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Term
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Definition
| Coupon rate times the face value. Generally paid in semi-annual installments. |
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Term
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Definition
| The bond's term. The time from the present until the principal is to be returned to the bondholder. |
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Term
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Definition
| The date at which the principal is due and the issuer is to repay par value to the bondholder. |
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Term
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Definition
| When the issuer sells its bonds to the public and receives the proceeds. This is considered a primary market transaction. |
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Term
| Seasoned/Outstanding Issue |
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Definition
| When bonds are sold by one investor to another investor. This is considered a secondary market transaction. |
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Term
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Definition
| Bondholder. Anyone who owns a bond. |
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Term
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Definition
| The rate of return an investor will receive on a bond if it is held to maturity and if the interest payments are re-invested at the YTM. The IRR of a bond - the interest rate that makes to PV of all payments equal to the price of the bond. The "expected" return. |
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Term
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Definition
Coupon Payment
Market Price |
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Term
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Definition
| The rate of return an investor will receive if the bond is called prior to maturity. |
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Term
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Definition
| sells above par - occurs when current market interest rate is less than coupon - sells for more because new bonds are paying less - therefore the market price adjusts so that both a seasoned issue and new bonds are of equivalent value (have same rate of return). Coupon>Current Yield>YTM. |
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Term
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Definition
| sells below par value when market interest rate is above coupon rate - price falls so that the value (rate of return) of a seasoned issue is equivalent to a new issue bond. Coupon<Current Yield<YTM. |
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