Understanding Bond Notation and Terminology
Learn about bond notation and terminology for a 10-year bond with 8% semiannual coupons and a redemption value of $1200. Explore how the bond price is calculated, the yield, and the payment structure over the bond's term.
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Presentation Transcript
SOA Exam FM Module 3 Section 4 Bond Notation and Terminology
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually.
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate)
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate) ? = 1200
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate) Paid in 10 Years (when the bond matures) ? = 1200
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate) Paid in 10 Years ? = 1200 (when the bond matures) Coupons paid every 6 months for 10 years
Bond Example You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate) Paid in 10 Years ? = 1200 (when the bond matures) ? = 1000 0.08 Coupons paid every 6 months for 10 years 2= 40
Timeline You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 Paid Today ? = 0.03 = seir(yield rate) Paid in 10 Years ? = 1200 (when the bond matures) ? = 1000 0.08 Coupons paid every 6 months for 10 years 2= 40 1200 40 40 40 1 20 2 ? = 1259.51
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate)
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate)
Notation and Terminology You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 ? = 0.03 = seir ? = 1200 ? =0.08 2= 0.04 ? = 1000
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate) ? Coupon Payment (? = ? ?)
Notation and Terminology You buy a 10-year 1000 face value bond with 8% semiannual coupons and a redemption value of 1200. The price of the bond is 1259.51 to yield 6% compounded semiannually. ? = 1259.51 ? = 0.03 = seir ? = 1200 ? =0.08 2= 0.04 ? = 1000 ? = ? ? = 40
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate) ? Coupon Payment (? = ? ?) ?? Amount of Interest Earned with the ?th Coupon
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate) ? Coupon Payment (? = ? ?) ?? Amount of Interest Earned with the ?th Coupon ?? Amount of Principal Adjustment with the ?th Coupon
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate) ? Coupon Payment (? = ? ?) ?? Amount of Interest Earned with the ?th Coupon ?? Amount of Principal Adjustment with the ?th Coupon ? = ??+ ??
Notation and Terminology ? Price of the Bond ? Yield Rate (as a Periodic Effective Interest Rate) ? Redemption Value ? Face Value (or Par Value) ? Coupon Rate (as a Periodic Effective Interest Rate) ? Coupon Payment (? = ? ?) ?? Amount of Interest Earned with the ?th Coupon ?? Amount of Principal Adjustment with the ?th Coupon ? = ??+ ?? ?? Book Value (Amortized Value) Immediately After the ?th Coupon
Timeline ? ? ? ? ?= Price
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price
Timeline ? ? ? ? ?= Price = ?0
Timeline ? ? ? ? ?= Price = ?0 ??
Timeline ? ? ? ? ?= Price = ?0 ?? = ?
Timeline ? ? ? ? ?= Price = ?0 ?? = ? The last coupon is paid at time ? The redemption value is paid at time ?+
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price ??? book value just ?????? ?th payment = ??
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price ??? book value just ?????? ?th payment = ?? ??? ? = ?? ??
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price ??? book value just ?????? ?th payment = ?? ??? ? = ?? ???= ??+ ? ?? ??
Timeline ? ? ? ??= book value just ????? ?th coupon ?= Price
Timeline ? ? ? ? ??= book value just ????? ?th coupon ?= Price
Timeline ? ? ? ? ??= book value just ????? ?th coupon ?= Price ?? 1= book value just ????? (? 1)?t coupon
Timeline ? ? ? ? ??= book value just ????? ?th coupon ?= Price ?? 1= book value just ????? (? 1)?t coupon ???= ?? 1 1 + ? ??
Timeline ? ? ? ? ??= book value just ????? ?th coupon ?= Price ?? 1= book value just ????? (? 1)?t coupon ???= ?? 1 1 + ? ?? ???= ??+ ? ??
