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Exam 2 notes FNIC
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Unlock the fundamentals of financial instruments with this expertly crafted document. Perfect for students, professionals, or anyone looking to deepen their understanding of finance. Key highlights include: Treasury Bills: Discover the mechanics of pure discount loans with examples, including ca...

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  • December 22, 2024
  • 2
  • 2024/2025
  • Class notes
  • Marlin jenson
  • All classes

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Treasury bills ex of pure discount loan
-printable amt. Paid at future date (no periodic interest payments)

Principle pais = total payment- interest paid
ending= beginning balance- principle paid

Amortized loan
Works against you when you pay it
Every payment is interest and principle
ex.)lease on a car

PMT*(t+1)/R=v

Bond terms
Bond
– Debt contract
– Interest-only loan
• Par value (face value) (repaid at maturity)
•Coupon payment
Coupon rate (stated interest rate) Usually YTM=yield to maturaty @ issue (multiply by par value
payment)
YTM changes over life of bond
(The market required rate of return for bonds of
similar risk and maturity
– The discount rate used to value a bond
– Return if bond held to maturity
– Usually = coupon rate at issue
– Quoted as an APR)
If coupon rate=YTM then the bond sells at par value
• Maturity date
• Yield to maturity
Maturity-years until bond has to be paid

Bond Value = PV(coupons) + PV(par)
• Bond Value = PV(annuity) + PV(lump sum
As interest rates increase present values
Decrease (vise versa)

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