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Yes. At maturity you get the final coupon payment in addition to the return of principal.
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What is a Zero coupon bond?
A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so-called "coupons," hence the term zero-coupon bond.
What is a yield to maturity?
A yield to maturity is the internal rate of return on a bond held to maturity, assuming scheduled payment of principal and interest.
What is a bond and how interest are paid?
Bond could for instance be if you lend money to the government. They would pay you an interest like if you would pay an interest in the bank.
What is the most widely used measure of interest rates in bond markets?
Yield to maturity
What makes some bonds sell at a premium while others sell at a discount?
Bonds trade at a premium or discount based on the interest rate demanded by the markets for that specific maturity, credit quality, and details vs. the rate demanded at the time of issue. - Example: Trading at a Discount - For example, the 4.5% US Government bond maturity 02/15/16 is currently trading at a discount. At issuance, you could buy this bond for $100.00 and receive $4.50 every year in interest. However, interest rates are higher today than they were when the bond was issued (currently 4.85% for this maturity/credit quality). Therefore, to receive 4.85% in interest, you must pay less than 100 for the bond you would have paid at issuance. The reverse is true for bonds trading at a premium. If the interest rate had fallen to 4.00%, you would be willing to pay more than 100.00 for the bond.
What is a Zero coupon bond?
A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so-called "coupons," hence the term zero-coupon bond.
What is repaid to the investor on a bond's maturity date?
The principle and interest.
What is an accrual bond?
An accrual bond is a fixed-interest bond which is issued at face value and repaid at the end of the maturity period along with the accrued interest.
What is the theory behind requiring bond issuers to charge bond discounts to interest expense when the discount is amortized?
When a bond matures the issuer has to pay the investor the full face value of the bond. The bond will also have a stated interest rate. If an investor will only accept a rate of interest which is higher than the stated interest rate, the issuer will likely sell the bond for less than the present value of the face value of the bond. For example, If a $100,000 bond is issued with a $4,000 discount to meet the buyers desired return, the issuer will have to pay the investor the $96,000 ($100,000-$96,000) the issuer received plus the $4,000 discount upon maturity. Since the issuer has to pay out that $4,000, upon maturity, to secure $96,000 the $4,000 discount is recognized by the issuer as interest expense (over the life of the bond).
When the interest rate on a bond and its yield to maturity are equal the bond will trade at par value?
wes
What is a yield to maturity?
A yield to maturity is the internal rate of return on a bond held to maturity, assuming scheduled payment of principal and interest.
Why do bond prices and yields vary inversely?
Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond’s yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.
What is a bond and how interest are paid?
Bond could for instance be if you lend money to the government. They would pay you an interest like if you would pay an interest in the bank.
What is the most widely used measure of interest rates in bond markets?
Yield to maturity
What makes some bonds sell at a premium while others sell at a discount?
Bonds trade at a premium or discount based on the interest rate demanded by the markets for that specific maturity, credit quality, and details vs. the rate demanded at the time of issue. - Example: Trading at a Discount - For example, the 4.5% US Government bond maturity 02/15/16 is currently trading at a discount. At issuance, you could buy this bond for $100.00 and receive $4.50 every year in interest. However, interest rates are higher today than they were when the bond was issued (currently 4.85% for this maturity/credit quality). Therefore, to receive 4.85% in interest, you must pay less than 100 for the bond you would have paid at issuance. The reverse is true for bonds trading at a premium. If the interest rate had fallen to 4.00%, you would be willing to pay more than 100.00 for the bond.
Why does bond price decrease when yield to maturity increases?
If you buy a bond with say a 4% coupon at par when bonds of that maturity and quality are paying 4% and then market rates for that maturity and quality bond rise to say 5%, the price of your bond must drop so that the yield to the buyer equals the current market rate of 5%.
What are malkiel's theorems?
Malkiel's theorems summarize the relationship between bond prices, yields, coupons, and maturity. Malkiel's Theorems paraphrased (see text for exact wording); all theorems are ceteris paribus: · Bond prices move inversely with interest rates. · The longer the maturity of a bond, the more sensitive is its price to a change in interest rates. · The price sensitivity of any bond increases with its maturity, but the increase occurs at a decreasing rate. · The lower the coupon rate on a bond, the more sensitive is its price to a change in interest rates. · For a given bond, the volatility of a bond is not symmetrical, i.e., a decrease in interest rates raises bond prices more than a corresponding increase in interest rates lower prices.
