Microsoft PowerPoint - PoF.ppt

Definitionƒ 100

Bonds are called fixed income securities, because

ƒ

a fixed amount,

“face value” (FV) / “principal” / “par value”,

is repaid at the date of maturity and

ƒ

a fixed amount,

“coupon” (c) / “interest”

is paid periodically.

ƒ

A bond is a security that

obligates the issuer to make

specified interest and principal payments to the holder on specified dates,

ƒ

t = 0: bondholder pays the price / present value (P),

ƒ

0 < t

≤

T: bondholder (ev.) receives coupon payments, and

ƒ

t = T: bondholder receives the face value.

Multi-period deterministic cash flows: FI securities - Introduction