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t. e. A zero-coupon bond (also discount bond or deep discount bond) is a bond in which the face value is repaid at the time of maturity. [1] Unlike regular bonds, it does not make periodic interest payments or have so-called coupons, hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par (or face) value.
Duration is a linear measure of how the price of a bond changes in response to interest rate changes. It is approximately equal to the percentage change in price for a given change in yield, and may be thought of as the elasticity of the bond's price with respect to discount rates. For example, for small interest rate changes, the duration is ...
It is the theoretical internal rate of return, or the overall interest rate, of a bond — the discount rate at which the present value of all future cash flows from the bond is equal to the current price of the bond. [3] The YTM is often given in terms of annual percentage rate (APR), but more often market convention is followed.
A fixed-rate bond might offer a 4 percent coupon, for example, meaning it will pay $40 annually for every $1,000 in face value. ... while discount bonds will offer a yield that’s higher than the ...
To compensate for that, corporations issuing bonds at a lower rate must offer buyers a discount. Bond Price and Interest Rate Example Let’s say you purchase a bond from ABC Corp. that comes with ...
The discount, or charge, is the difference between the original amount owed in the present and the amount that has to be paid in the future to settle the debt. [1] The discount is usually associated with a discount rate, which is also called the discount yield. [1] [2] [4] The discount yield is the proportional share of the initial amount owed ...
The forward rate is the future yield on a bond. It is calculated using the yield curve. For example, ... The discount factor formula for period (0, t) ...
In a floating-rate bond, ... For example, a discount bond with 10 years until maturity will not rise much over the next year, all else equal. In contrast, a bond with five years until maturity may ...