Coupon rate yield to maturity premium

Arbitrage The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time. Bid-to-Cover-Ratio A ratio that compares the numbers of bids received in a Treasury security auction to the number of bids accepted.

A ratio above 2.

Yield to Maturity of a Bond

A low ratio is an indication of a disappointing auction , marked by a wide bid-ask spread. Sumber : Investopedia. Bonds are used by government, companies, municipalities, states and foreign governments to finance a variety of projects and activities. Bond Index A statistical measure of change in bond market. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value. If the security continues to be held, the gain is unrealized.


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  • Bond Terminology!
  • Premium Bond Definition.

Convertible Debenture Any type of debenture that can be converted into some other security. Corporate Bond A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. Coupon The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually.

Premium Bonds 101

This is also referred to as the "coupon rate" or "coupon percent rate". Covenant A promise in an indenture, or any other formal debt agreement, that certain activities will or will not be carried out. Dealer An individual or firm willing to buy or sell securities for their own account. Both corporations and governments frequently issue this type of bond in order to secure capital.

Like other types of bonds, debentures are documented in an indenture.

Valuing Bonds

Default The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Duration A measure of the sensitivity of the price the value of principal of a fixed-income investment to a change in interest rates.


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Duration is expressed as a number of years. The bigger the duration number, the greater the interest-rate risk or reward for bond prices. Macaulay Duration The weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price, and is a measure of bond price volatility with respect to interest rates.

Face Value Par value The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity. Also known as "par value" or simply "par". Government Bond A debt security issued by government and sold to investors. It is also the termination or due date on which an installment loan must be paid in full.

Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

What’s the Difference Between Premium Bonds and Discount Bonds?

The difference represents the bond premium. The amount by which the bond proceeds exceed the face value of the bond is the bond premium. The bond premium causes the interest expense to be lower than the interest payment such that the effective rate of interest is lower than the coupon rate. Bond discount and bond premium i. You are welcome to learn a range of topics from accounting, economics, finance and more. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable.

Bond yields

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