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CH 4

Cash Flows

different streams of cash payments to the holder with very different timing

Consol or Perpetuity

a perpetual bond with no maturity date and no repayment of principal that periodically makes fixed coupon payments of $V forever

Coupon Bond

the coupon payment is so named because the bondholder used to obtain payment by clipping a coupon off the bond and sending it to the bond issuer, who then sent the payment to the holder.

Coupon Rate

dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond.

Current Yield

the yearly coupon payment dividend by the price of the security

Discount Bond

(zero-coupon bond) is bought at a price below its face value (at a discount), and the face value is repaid at the maturity date

Face Value

(par value) , The principal amount of a bond, which will be paid off at maturity.

Fixed-Payment Loan

loan where lender provides the borrower with an amount of funds, which must be repaid by making the same payment every period, consisting of part of the principal and interest for a set number of years

Indexed Bond

interest and principal payments are adjusted for changes in the price level

Interest-rate Risk

the riskiness of an asset's return that results from interest-rate changes

Nominal Interest Rate

interest rate that makes no allowance for inflation

Present Value or Present Discounted Value

based on the common sense notion that a dollar paid to you one year from now has less value to you than a dollar paid to you today

Rate of Capital Gain

the change in the bond's price relative to the initial purchase price

Real Interest Rate

interest rate that is adjusted by subtracting expected changes in the price level(inflation) so that it more accurately reflects the true cost of borrowing

Real Terms

in terms of real goods and services you can buy

Return (Rate of Returns)

how well a person does by holding a bond or any other security over a particular time period

Simple Loan

the simplest kind of debt instrument

Yield to Maturity

interest rate that equates the present value of cash flow payments received from a debt instrument with its value today

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