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Definition
For a registered bond, the issuer keeps records of who owns its bonds. Coupon payments are sent to the registered owner regardless of whether or not the bond certificate is produced.
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Term
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Definition
| Default risk is the risk the issuer violates the terms of the bond certificate. |
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Definition
| Sovereign debt is debt issued by the government of a country. |
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A 30-year bond with a face value of $1000 has a coupon rate of 5.5%, with semi-annual payments.
What is the coupon payment for this bond?
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Definition
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B&O Railroad bonds have a 9% coupon rate and a $1000 face. The coupons are paid semiannually. The bond has 20 years to maturity and the yield is 7% compound semiannually. Find the price.
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Definition
C = (9%*1000)/2 = $45. Total periods = 20(2) = 40. Interest per period = 7%/2 = 3.5%.
Calculator: N = 40 I = 3.5 PMT= 45 FV=1000
Hit PV = 1213.55
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Term
| If the yield is 8%, find the price of a perpetual bond with a coupon rate of 10% and $1000 face value. |
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Definition
| Coupon = 10%(1000) = 100. Price = 100/.08 = $1250 |
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Intec has issued a 5-year bond with a face value of $1000. The coupon rate is 10% with semiannual payments. Find the bond’s price if the yield is 8% compound semiannually. What is the premium or discount?
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Definition
Coupon PMT = (10%×1000)/2 = 50. PV(Bond) = [$50 * (1 - 1.04-10)/.04] + $1000/1.0410 = 1081
Calculator: P/Y = 1 N = 10 I = 4 PMT = -50 FV = -1000 Compute PV = 1081
Computer: PV(.04,10,50,1000)
Premium = Price – 1000 = 1081 – 1000 = 81
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Term
A deep discount bond matures in 3 years. If the yield is 10%, find the bond price.
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Definition
PV(Bond) = PV(Face) = $1000/1.103 = 751.31
Calculator: P/Y = 1 N = 3 I = 10 FV = -1000 Compute PV = 751.31
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