《金融市场与机构 Jeff Madura》ch07.pptVIP

7 Bond Markets Chapter Objectives Provide informational background on U.S. Treasury, state and municipal, and corporate Bonds Calculate bond yield from quote Explain the role of bonds to institutional investors Discuss the globalization of bond markets Background on Bonds Bonds represent long-term debt securities Contractual Promise to pay future cash flows to investors The issuer of the bond is obligated to pay: Interest (or coupon) payments periodically usually semiannually Par or face value (principal) at maturity Primary vs. secondary market for bonds Background on Bonds The issuer’s cost of financing with bonds is the coupon rate Determined by current market rates and risk Usually fixed throughout term Determines periodic interest payments Background on Bonds The yield to maturity (TYM) is the yield that equates the future coupon and principal payments with the bond price The YTM is the investor’s expected rate of return if the bond is held to maturity The actual YTM may vary from the expected because of risks assumed by the investors Background on Bonds An investor can purchase a ten-year, $1000 par value bond with an 8 percent annualized coupon rate for $936. Determine the yield to maturity for this bond. Background on Bonds An investor can purchase a ten-year, $1000 par value bond with an 8 percent annualized coupon rate for $936. Determine the yield to maturity for this bond. Background on Bonds U. S. Treasury Bonds Issued by the U.S. Treasury to finance federal government expenditures Maturity Notes, 10 Years Bonds, 10 to 30 Years Active OTC Secondary Market Semiannual Interest Payments Benchmark Debt Security for Any Maturity Treasury Bonds Treasury Bond Quotations 8.38 Aug. 2013-18 103:05 103.11 YTM? Coupon rate Maturity date Bid/Ask price as percent of face value Fractions of price in 32nds Example: Bid price 103:05, Ask price 103:11 Yield to Maturity (YTM) U. S. Treasury Bond Yield To Maturity Treasury Bonds Coupon bon