chap 7 from worksheet

The amount that will be repaid at the end of the loan is called the bond's face value, or

The bonds par value

Par value is usually ________ for corporate bonds, and a bond that sells for its par value is called a par value bond

$1000

When a corporation or government wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities that are generically called

Bonds/notes

Who would issue bond and who is lending the money?

Corporations, government are issuing them and the public are lending the money.

________ is the stated interest payment made on a bond

Coupon

The annual coupon divided by the face value is called the ____________ on the bond

Coupon rate

Price level goes up w/

Increase in inflation

A bond is normally an __________, meaning that the borrower will pay the interest every period, but none of the principal will be repaid until the end of the loan.

Interest-only loan

All other things being equal, the _______ the time to maturity, the _________ the interest rate risk.

Longer, greater

All other things being equal, the _______ the coupon rate, the _________ the interest rate risk.

Lower, greater

The number of years until the face value is paid is called the bond's time to

Maturity

If YTM < coupon rate, then

Par value < bond price *premium*

If YTM = coupon rate, then

Par value = bond price *@* *par*

If YTM > coupon rate, then

Par value > bond price *discount*

When interest rates rise, the present value of the bond's remaining cash flows declines, and the bond is worth less. When interest rates fall, the bond is worth more.

TRUE When interest rates go down, bond prices go up

Indenture is the

Written agreement between issuer & lender

The interest rate required in the market on a bond is called the bond's ______________. This rate is sometimes called the bonds yield for short.

Yield to maturity (YTM)