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Definition
Premium sells for > $1000
Discount sells for < $1000 |
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| payment at the maturity of the bond. also called principal or par value =$1000 |
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| What is a premium bond's rate of return's relationship with the CY? |
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Definition
| it will be lower than the CY |
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| What is a discount bond's rate of return's relationship with the CY? |
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Definition
| it will be higher than the CY |
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| If the return >CY then the return is said to be what? |
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Term
| Return Rate = coupon then it is what kind of bond? |
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| What do both discount and premium bonds equal at maturity? |
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the interest rate that equates to the price of the bond to the maturity price
-aka IRR |
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| portion of the nominal rate that compensates for risk of default |
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| portion of the nominal rate that compensates for tax loss |
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| portion of the nominal rate that compensates for the lack of liquidity |
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| Term structure of interest rates |
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Definition
| brings about a relationship between long term rates and short term rates |
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Definition
| annual interest payment as a percentage of face value |
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the risk in bond prices due to fluctuations in interest rates
-constant throughout the bonds lifetime |
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-annual coupon payments divided by bond price
- coupon rate |
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Definition
interest rate for which the present value of the bond's payments equals the price
- |
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Term
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| total income per period per dollar invested |
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| What happens to he rate of return if interest rates rise? |
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Definition
| will be less than yield to maturity |
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| What happens to the rate of return if interest rates fall? |
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Definition
| it will be greater than the yield to maturity |
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| What is the rate of return of bonds priced at face value? |
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