Essentials of Investments: Chapter 10 - Bond Prices and Yields includes Bond Characteristics, Corporate Bonds, Preferred Stock, Innovation in the Bond Market, Bond Prices and Yields, Yield to Maturity, Realized Yield versus YTM. | CHAPTER 10 Bond Prices and Yields INVESTMENTS | BODIE, KANE, MARCUS McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 14-2 Bond Characteristics • Bonds are debt. Issuers are borrowers and holders are creditors. – The indenture is the contract between the issuer and the bondholder. – The indenture gives the coupon rate, maturity date, and par value. INVESTMENTS | BODIE, KANE, MARCUS 14-3 Bond Characteristics • Face or par value is typically $1000; this is the principal repaid at maturity. • The coupon rate determines the interest payment. – Interest is usually paid semiannually. – The coupon rate can be zero. – Interest payments are called “coupon payments”. INVESTMENTS | BODIE, KANE, MARCUS 14-4 . Treasury Bonds •Note maturity is 1-10 years •Bond maturity is 10-30 years • Bonds and notes may be purchased directly from the Treasury. • Denomination can be as small as $100, but $1,000 is more common. • Bid price of 100:08 means 100 8/32 or $ INVESTMENTS | BODIE, KANE, MARCUS 14-5 Corporate Bonds • Callable bonds can be repurchased before the maturity date. • Convertible bonds can be exchanged for shares of the firm’s common stock. • Puttable bonds give the bondholder the option to retire or extend the bond. • Floating rate bonds have an adjustable coupon rate INVESTMENTS | BODIE, KANE, .
