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FIN 101 Ch. 6

Terms in this set (19)

Interest-Only Loan
A loan that only requires the payment of interest for a stated period of time with the principal repaid at the end of the term.
Coupon
the stated interest payment made on a bond
level coupon bond
coupon is constant and paid every year
face value (par value)
the principal amount of a bond that is repaid at the end of the term
Par value bond
a bond whose stated interest rate is exactly the same as the market interest rate
Maturity
the specified date on which the principal amount of a bond is paid
When interest rates rise, the present value of the bond's remaining cash flow ______, and the bond is worth _______.
declines; less
When interest rates fall, the present value of the bond's remaining cash flow ______, and the bond is worth _______.
increases; more
yield to maturity
the interest rate required in the market on a bond
Premium bond
a bond that sells above its par value; occurs whenever the going rate of interest is below the coupon rate
How is a bond yield quoted?
the quoted rate is equal to the actual rate per period multiplied by the number of periods.
Bond prices and interest rates always move in ___________ directions.
Opposite
Discount Bond
a bond that sells below its par value; occurs whenever the going rate of interest is above the coupon rate
The degree of interest rate risk depends on
the sensitivity of the bond's price to interest rate changes.
The longer the time to maturity, the ______ the interest rate risk.
greater
Interest rate risk
the risk that arises for bond owners from fluctuating interest rates
The lower the coupon rate, the _______ the interest rate risk.
greater
Current Yield
a bond's coupon payment divided by its closing price.
Equity represents an _____ interest of a firm.
ownership
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