Face (Par) Amount F
The bond’s stated principal used to compute coupon payments
Redemption Amount C
What you receive at maturity (may differ from F) “Redeemable at Par” C+F
Coupon Rate r
Rate applied to F each coupon period. r=0.05/2=0.025
Coupon Payment Fr (per period)
The dollar coupon each period. Fr=100(0.025)=$2.50
Nominal Annual Yield 𝑖^m “convertible m times”
Quoted APR with compounding m times pr year. Per- period yield i= i^m/m. ex: 7.2% semiannual, i=0.072/2=0.036
Effective Annual Rate (EAR) j
One year growth rate. Convert per period i by (1+i)^m =1+j, i=(1+j)^1/m-1.
Discount Factor V
v=1/1+i. Present value of $1 received one period from now.
Annuity-Immediate ani
Present value of $1 each period for n periods at rate i: !-v^n/i. Used for coupon streams in every priced bond.
Bond Price (just after a coupon)
P=Fr ani+Cv^n. “Yielding x% tells you i;”priced at P” gives you the left side.
Premium vs Discount (relative to C)
Premium if Fr>iC (price >C); discount if Fr<iC (price< C).
Zero coupon Bond
No Coupons (r=0); price P=Cv^n.
“Coupons are based on par value”
Coupon payments use F (not C or price)
Yield to Maturity (solve i)
Rate per period that equates price to PV of cash flows,
“Nominal yield rate convertible quarterly”(i)^4
Report 4x the per-quarter rate. In calc, solve per quarter i first; then multiply by 4
Using a given PV of redemption
If told Cv^n=given, you can get v^n immediately then ani=1-v^n/i to price coupons.
Equating PV (coupons) and PV (Redemption)
Set Fr ani= Cv^n to get a relation between n,i,r.
Same yield condition across two bonds
If two bonds share the same i and n, differences in price come only Fr.
Semiannual vs. Quarterly wording
Semiannual, m=2 periods/yr; Quarterly, m=4. Adjust both 4 (coupon per period) and i(yield per period) and set n=years x m.
“Priced at 115.84” /”Selling for 800”
That number is P (present alue). Use it with the price equation to solve for the unknown (often C or i)
Timeline phrasing (end of period)
Standard bond cash flows occur at the end of each period. Use END mode on the calculator.
